The Polygon (MATIC) SWOT Analysis: Evaluating the General-purpose Ethereum Scaling Solution

Composed of four elements, Strengths, Weaknesses, Opportunities, and Threats, a SWOT analysis framework provides excellent insight for evaluating the state of a project's well-being through the lens of a birds-eye view.

It can help formulate decisions on what areas require more attention, set performance goals, and organize a foundational understanding of where a project is headed.

Rarely (if ever) used in crypto, it is time to apply this timeless method of evaluation to the digital asset space.

Today, Polygon (MATIC), a general-purpose Ethereum scaling solution ecosystem, gets a SWOT.

💪Strengths (Internal) (Helpful)

1. Multi-solution Architecture Polygon is one of the most unique projects in and beyond the EVM ecosystem due to its genuinely unique approach of providing a suite of solutions rather than just a single scaling option. Known for its Sidechain, where the vast majority of all public activity happens, there are also the zkEVm, the Zero-Knowledge Proof Rollup (Miden), Supernets (enabled by polygon "edge" which is their equivalent to substrate), Polygon Hermez, and Polygon Nightfall.

   
   

2. Vibrant NFT Business Development  Polygon Labs does an amazing job attracting high-caliber brands into their ecosystem from beyond just Web3. Major global companies such as Starbucks, Mastercard, Meta (Facebook), Disney, National Geographic, and Reddit, among others, have chosen to use Polygon as their chain of choice for deploying the NFTs for their audiences. This level of attention has even pushed some crypto-native projects to abandon their original chains and port over to Polygon (namely, YOOTs).

   
   

3. Token Supply Fully Vested Polygon is perhaps the only major blockchain/crypto project with the total maximum supply of its token already in circulation. By having an economic state that is no longer subjected to supply-side pressures of inflation, it will be very interesting to watch how it handles market activity. While there is some merit in having supply-side inflation, with a hard cap already in place, there is a new vector of behavioral reflexivity that could potentially decouple MATIC from other crypto assets.

   
   

4. Transaction Sucess Rate Doubles This is an empirical personal observation from using the network as well as something that has been confirmed in the Messari "State of Polygon" report. In Q1 of 2022, Polygon was handling roughly ~3 million transactions per day, of those approximately 350,000(11.67%) were failing. Today, it handles the same daily transactions count with the failure rate dropping into the range of ~150,000 (5%). Given the consistent focus on tech optimization, this rate will continue to trend to tighten up. The smaller the failure rate, the better for consumers. FYI failed transactions still consume the gas fees. As a matter of comparison, ETH has had months with 40,000 daily failures.

   
   

5. EIP-1559 (Burn) Adopted from the Ethereum mainnet's economic model, EIP-1559 burns a portion of all network transaction fees. As it pertains to Polygon, having such a strong burn mechanism in place, coupled with its fixed supply, the degree of impact this deflationary effect can have on the MATIC asset could potentially be transformative.

   
   

6. 38.2% of total $MATIC supply Staked Another factor that is impressive in part due to the fact that all of the Matic that will ever exist is already circulating. Having such a large percentage of the token supply locked into staking, exerts positive pressure on the liquidity profile. Something worth considering is that most of this comes from validators, which effectively means that the 100 validators of the network also control a sizeable chunk of all the tokens. In my opinion, this is an acceptable level of power distribution. Anything above 50% is not.

😞 Weaknesses (Internal) (Harmful)

1. Very Low TVL Considering the network has shown extreme resilience to defending a market cap that fluctuates around the 5–10B mark and provides so many resources to retail users, it is interesting to see that the Total-Value-Locked on-chain is just about $1 Billion USD. This is of course correlated with the broader market trend of falling TVL's, but when comparing the relative drop of the $MATIC token from $2.80 to $0.80 (-71.42%) to the TVL drop from $9B to $1.2B (-86.67%); there is a disproportionate dislocation.

   
   

2. Suffers from Re-Orgs Chain re-organizations are a technical nuance that falls somewhere between hacking and manipulation. Re-orgs can seriously disrupt operations and cause unintended, damaging consequences to regular users. This happens far more than acceptable, literally, thousands of reorgs have happened, some estimates show that the chain experiences five per day! This issue came about as a side-effect of the Delhi fork update; a bug in the code relating to the function sprintLength, which forces 32-block reorgs, a re-org block depth much larger than any other chain.

🧐 Opportunities (External) (Helpful)

1. Attractive to Legacy Private Equity Large legacy financial institutions have been showing a positive response to Polygon and have even selected it to begin conducting on-chain financial experiments. Hamilton Lane has leveraged Polygon as the network to tokenize a portion of its $2.1 Billion USD Opportunities Fund via securitize. This trial is lowering the barrier to entry from the traditional $2,000,000 mark to as low as $20,000 and inviting a new caliber of market participants.

   
   

2. Strong Adoption by Gaming Communities The combination of the level of security and transactional throughput, coupled with NFT infrastructure has turned Polygon into the most widely used EVM blockchain network for the gaming community. Metrics of over 115,000 active gamers and over 40,000,000 gaming transactions

   
   

3. Top Chains for Developers The excellent business development skills of the project shine in the department of developer engagement and attraction. Polygon has put forth notable efforts by hosting a fair amount of hackathons and providing one of the most robust toolkits for developers. Metrics including the amount of full-time developers (~220), the rate of developer growth (+200% in 2 years), and the total developer contributor count (>700), rank Polygon in the top 6 networks for developers, according to the leading industry Developer Report by Electric Capital.

😳 Threats (External) (Harmful)

1. Dependance on Ethereum This is not really a threat in the sense that any existential risk comes from this, however, Polygon is the only project I have seen that requires its Validators to have a minimum of 0.5/1 ETH available across chains in order to pay for anchoring activity into the network. By having some degree of dependence on ETH, MATIC inadvertently becomes tithed to its network fluctuations.

Takeaway:

Easily one of the most robust projects across every metric. Insulating themselves technologically from every possible angle and nurturing powerful relationships with many of the world's most notable corporations, positions Polygon into a category of "Too Big To Fail". These are Famous last words, so this is by no means financial advice. Honestly, even the so-called "threat" identified in this SWOT analysis is irrelevant to the enormous strength of the project. If I had to give Polygon a score based solely on technology, long-term viability, and expertise, it would be a solid 9/10.

Conclusion:

I have interacted with Polygon many times throughout my crypto journey. They were the first network that I bridged assets to and from. They were the first network I used DEFI protocols outside of Ethereum. Purely on past performance, MATIC has been among the best of trades/investments over the last ~3/4 years; however, I have a creeping sense in the back of my mind that it was in part due to well-informed insiders understanding the unique token emission model. I will not invest in MATIC in the coming bull cycle but do always hold some for access to their network.

If you know something that I don't or feel as though I might have missed something, please do share, I would tremendously appreciate some feedback.

Thank you so much for reading,

I hope this serves you well on your journey.

Live long and prosper 🥂