Most recent update: [March 7, 2021]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Polygon, made available on the VirgoCX Platform, including an opinion that Polygon is not itself a security and/or derivative.
What Is Polygon?
Polygon is an interoperability and scaling framework for Ethereum. Calling itself “Ethereum’s internet of blockchains,” Polygon aims to create a multi-chain ecosystem of Ethereum-compatible blockchains. It also seeks to improve on some of Ethereum’s major limitations, such as its throughput, poor user experience, and lack of community governance using a novel sidechain solution.
Originally known as the Matic Network, the project started as a simple layer-2 scaling solution for Ethereum in October 2017. It was built by four software engineers – Jaynti Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic. The project was originally introduced as a testnet prior to turning to the mainnet later in the same year. As the project’s scope rapidly grew, Matic decided to rebrand as Polygon in February 2021, in hopes of getting the project recognized on a global scale.
Despite expanding significantly on the vision laid out by the Matic Network, Polygon still utilizes the same token, known as MATIC.
Polygon envisions a world in which distinct blockchains can freely and efficiently exchange value or information, ridding the world of the current divides in technology and ideology.
How Does Polygon Work?
Where Matic was a simple Layer-2 scaling solution, Polygon lays the infrastructure for a network of massively scaling, collaborative blockchains that hold their self-governance. Polygon caters to the diverse need of developers by offering modules they can use to easily deploy and configure their own blockchain. This can include consensus modules, as well as execution environments and virtual machine integration. Blockchains that are launched this way benefit from Matic’s proof-of-stake (PoS) sidechain (essentially a parallel chain that is connected to another blockchain, like Ethereum), which utilizes a network of validators in order to speed up transactions and cut fees down to a minimum, all while eventually finalizing everything on the Ethereum blockchain.
Polygon’s architecture can be defined as a four-layer system composed of the Ethereum layer, a security layer, the Polygon networks layer, and an execution layer.
- The Ethereum layer is a set of contracts that handle things like transaction finality, staking, and communication between Ethereum and various other Polygon chains.
- The security layer runs side by side with Ethereum, providing a “validators as a service” role that allows chains to benefit from an extra layer of security.
- The Polygon networks layer is the ecosystem of the blockchains built on Polygon; each of these blockchains have their own community and are responsible for handling local consensus, as well as production blocks.
- Lastly, the execution layer utilizes Polygon’s Ethereum Virtual Machine (EVM) to execute smart contracts.
Chains that are launched on Polygon can communicate with each other as well as with the Ethereum blockchain due to Polygon’s arbitrary message passing capability, enabling new use-cases such as interoperable dApps and the exchange of value between two different platforms.
Polygon can support two types of chains: standalone chains and secured chains. Standalone chains are self-sovereign blockchains directly compatible with Ethereum, whereas secure chains leverage a network of validators. Theoretically, Polygon can one day have thousands of chains scaling together to increase throughput, with the potential to generate millions of transactions per second when attached to a mainchain like Ethereum.
The platform is designed to support a plethora of blockchain scaling mechanisms such as Plasma chains, zero knowledge (zk) rollups, and Optimistic rollups -- all intended to multiply the transaction throughput of associated chains without compromising on security or user experience. As of right now, however, Polygon currently only supports their native Matic proof-of-stake chain and the Plasma chain. In the future, Polygon aims to add support for various alternate scaling solutions to give developers the flexibility to choose whichever suits their needs best. This also puts Polygon in a unique position should any single scaling solution become dominant or fail in the future.
While it is entirely focused on Ethereum at the moment, Polygon has plans to develop its scalability offering to other blockchains, hoping to prove true cross-chain interoperability between multiple protocols.
What Differentiates Polygon from Their Competitors?
Right now, Polygon is the only scalability solution that supports the Ethereum Virtual Machine, enabling connected chains to retain their sovereignty while also ensuring interoperability with each other and the main chain. This also makes it approachable to developers who are used to building apps on Ethereum and programming in Solidity.
Unlike other platforms, Polygon does not enforce chains within its ecosystem to leverage the security layer, allowing developers further flexibility and independence if the security is not needed. Communication is not sacrificed because of the network’s arbitrary message passing capability. This allows developers to build interoperable dApps that can use the unique properties of multiple chains at any scale.
The MATIC Token
Polygon’s native token, MATIC, has several distinct uses. These include participating in network governance by voting on Polygon Improvement Protocols, contributing to its security through staking, as well as being used to pay Ethereum gas fees. This mechanism also allows developers and ecosystem contributors to build dApps by providing MATIC tokens to use the platform and its framework.
The Matic Wallet was developed to hold MATIC tokens. Storing MATIC in the wallet gives holders the option to not only stake their tokens, but also manage their own investments. This was designed using Polygon’s MoreVP technology as a simple solution for MATIC holders to securely manage their finances. The wallet is also able to connect to various dApps and hold other ERC-20 tokens.
The Polygon platform is designed to let dApps speed up transactions, allowing near-instant settlement through specialized APIs and SDKs. This process allows dApps, merchants, and users, to instantly accept or pay in any type of cryptocurrency, though usually in ERC-20 tokens and ETH. Polygon’s payment system is being rolled out in three phases: first with ETH and ERC-20 token payments, second with cross-chain multi-asset token transfers utilizing atomic swaps, and lastly, with fiat-based payments leverage fiat liquidity providers.
Polygon’s sidechain scaling solution has the potential to make blockchain-based gaming faster and perform better. As it stands, blockchain gaming is at a serious disadvantage when compared to traditional games because of poor transaction speed and high latency. Polygon’s scaling technology, combined with the Ethereum network, can allow developers and gamers to build and play more effectively. To date, gaming and NFT dApps like Aavegotchi, Neon District, Zed Run and Cometh have begun scaling their user experiences with Polygon.
The Future of Polygon
Polygon presents a slew of solutions to Ethereum’s scalability crises. In the future they plan to make Polygon compatible with even more scalability solutions, including enterprise chains, shared security chains, and interchain communication protocols. Because of the Polygon’s proven network, they now enjoy direct support from major Ethereum developers, with many joining Polygon in advisory roles.
Polygon presents a promising solution to many of the issues that currently plague the Ethereum network; they have large ambitions for the development of their project but the widespread adoption of their network proves that they are on the right track.
The Polygon network, much like other Ethereum-based protocols, primarily runs the risk of subjecting its user base to high gas fees as the network grows and as more transactions are done through Ethereum.
While the main draw of the Polygon network is its increased load when compared to Ethereum’s comparatively sluggish 15 to 30 transactions per second, the Ethereum team have been hard at work at producing Ethereum 2.0, slated to take effect by the end of this year or early next year. This would move Ethereum from a proof-of-work to a proof-of-stake network, advertised to be able to handle 100,000 transactions per second. This will ultimately surpass the speed offered by Polygon, consequentially being a huge risk to the number of users that will be using the network as well as the price of the MATIC token.
Prior to listing Polygon on the VirgoCX Platform, VirgoCX performed due diligence on Polygon and determined that Polygon is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Polygon and/or its primary development team;
- The supply, demand, maturity and liquidity of Polygon; and
- Legal and regulatory risks associated with Polygon.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
If you would like to go even more in-depth on the Polygon network and its capabilities, check out the articles we have compiled here:
Polygon on Binance Academy: https://academy.binance.com/en/articles/what-is-polygon-matic
Polygon on CoinMarketCap: https://coinmarketcap.com/alexandria/article/what-is-polygon-matic