On July 13, Polygon released the economic model whitepaper for POL, the new native token of Polygon 2.0. POL is not an entirely new token but an upgrade of the existing MATIC token. The new POL token will operate across all Polygon ecosystem networks, including Polygon PoS, Polygon zkEVM, and Polygon Supernets. Existing MATIC token holders can convert their tokens to POL at a 1:1 ratio.
Following the announcement, the price of MATIC surged by 18% within 24 hours, reaching $0.86.
However, the whitepaper reveals that POL will have an initial total supply of 10 billion tokens, with an annual emission rate of 2% over the next decade. This means the total supply of POL will exceed the fixed cap of 10 billion MATIC tokens. This has sparked dissatisfaction among MATIC holders, who view this as a dilution of the original token's value.
According to CoinGecko, the current circulating supply of MATIC is 9.319 billion tokens, with a market capitalization of $8 billion, ranking it 11th among cryptocurrencies.
What Sets POL Apart from MATIC?
The POL token is a critical component of the Polygon 2.0 roadmap and a major concern for the community. Once the upgrade from MATIC to POL is implemented, the narrative and utility of the token will fundamentally change. The disclosed emission rate in the whitepaper has already sparked debate.
Understanding the POL Tokenomics
In the official blog post titled "Polygon 2.0: Tokenomics," the team highlighted the utility and migration process for POL but omitted details about the total supply. The whitepaper, however, outlines that POL's supply model consists of an initial issuance and continuous emissions.
The initial supply is set at 10 billion tokens, all allocated for the MATIC-to-POL conversion. Additionally, POL will have a fixed annual emission rate of 2%, which will remain constant for at least the first decade. After ten years, the community may adjust this rate, though the team has stated it will not exceed 2% and could potentially be paused.
The emissions serve two primary purposes: validator rewards and ecosystem development. Specifically, 1% of the annual emission will be allocated as base protocol rewards to validators, incentivizing their participation. The other 1% will be directed to the ecosystem fund to support the continued growth and development of the Polygon network. For the first ten years, the emission rate is fixed. After that, the community can propose changes to reduce it through governance, though it cannot exceed 1%.
This means that over the next decade, an additional 2 billion POL tokens will be emitted annually, causing the total supply to exceed the original MATIC cap.
Community Concerns and Official Responses
Many MATIC holders have expressed frustration, arguing that the emissions dilute the value of their holdings. Some have questioned why the team did not simply enhance the utility of MATIC instead of introducing a new token.
Others speculate that the Polygon team may be running low on funds and using POL as a way to finance ongoing operations. With 93% of MATIC already in circulation, the team may lack sufficient tokens to incentivize growth and adoption on Polygon zkEVM, making a new token necessary.
The official explanation is that the emission rate and supply model are designed to support the long-term maturation of the Polygon ecosystem and Web3 adoption. Historically, networks and computing platforms have taken 10-15 years to reach maturity, and during this period, sustained economic support is essential.
Once the Polygon ecosystem and Web3 achieve mainstream adoption, and transaction fees and other incentives provide sufficient returns for validators, the community can vote to reduce or halt emissions for validator rewards. Similarly, if the ecosystem no longer requires additional economic support, emissions to the community treasury can be adjusted or stopped.
This aligns with the community's speculation that the team may need more tokens to support Polygon zkEVM's growth.
The Role of POL in the Polygon 2.0 Ecosystem
With the announcement of Polygon 2.0, Polygon's strategy has evolved from a single blockchain network to a multi-chain ecosystem powered by ZK-Rollup technology. This ecosystem includes Polygon PoS, Polygon zkEVM, and various subnets built on Polygon Supernets. POL will serve as the native token across all these networks.
POL: The Third-Generation Token
The whitepaper describes POL as a third-generation token, following Bitcoin (BTC) and Ethereum (ETH). Here's how Polygon justifies this classification:
- BTC was the first native token, primarily used for paying gas fees and rewarding miners. However, it does not function as a productive asset (e.g., through staking) and offers no governance rights.
- ETH is a productive asset, allowing holders to stake their tokens, participate in network security, and earn rewards. However, its supply is unpredictable, and initial allocations to foundations can be depleted, halting ecosystem support.
- ATOM, the native token of Cosmos Hub, is also a productive asset that can be staked to secure the hub and earn rewards. However, it is only used within the Cosmos Hub and not across the broader Cosmos ecosystem. Its economic support cannot be sustained indefinitely, and community treasury funds may run out.
Polygon aims to address these limitations by allocating 1% of the annual emission to the community treasury, ensuring ongoing support for ecosystem development.
The Concept of Hyperproductive Token
Polygon also refers to POL as a "hyperproductive token." Holders can stake POL to become validators across all Polygon 2.0 networks. Depending on the chain, POL holders can assume different roles:
- On zkEVM chains, they can act as provers, generating and submitting zero-knowledge proofs.
- On PoS chains, they can serve as validators, processing transactions and producing blocks.
The introduction of the Staking Layer allows users to stake POL tokens into validator pools, enabling them to participate in validating Polygon chains and earn rewards from the 1% annual emission allocated to validators.
This approach is akin to Web2 cloud platforms, where users don't need to worry about where their data is stored. Similarly, validators don't need to choose which chain to validate to maximize rewards.
Thus, POL will serve as the foundational asset within the Polygon ecosystem, similar to AVAX in the Avalanche network and its subnets. However, in Polygon, validators can secure multiple chains, and each chain can offer multiple roles and corresponding rewards.
Regarding gas fees, the team has stated that Polygon PoS will use POL for gas payments, while other chains can choose to use POL or issue their own native tokens.
The Vision of Polygon 2.0
Polygon 2.0 aims to become the value layer of the internet, essentially serving as a Web3 platform layer (similar to Cosmos or Polkadot) that allows developers to build their own blockchain networks. It provides a flexible and powerful platform for dApps, analogous to Web2 cloud services.
Technical Architecture
Currently, Polygon 2.0 is a multi-chain L2 network powered by ZK technology. It introduces a set of modular components, including consensus and synchronization mechanisms, fraud proofs, and more. Developers can use these modules to build their own blockchain networks with unlimited scalability, unified liquidity, and cross-chain interoperability. For users, interacting with the entire ecosystem will feel like using a single chain.
As part of this upgrade, Polygon PoS will transition to zkEVM Validium to ensure compatibility with ZK technology. This will enable seamless communication and value transfer between zkEVM, PoS, and Supernets.
In summary, Polygon 2.0 will be a collection of ZK-based L2 scaling solutions.
Why the Shift to ZK?
The transition to a ZK-centric ecosystem is driven by the growing prominence of L2 solutions in the crypto market. As of July 14, the total value locked (TVL) in L2 networks exceeds $10 billion.
Polygon 2.0 aims to replicate the success of its EVM-compatible narrative by creating a new legend around "zkRollup L2 multi-chain interoperability." This shift is the result of years of effort and a strategic focus on becoming an "integrator of L2 scaling solutions." The team has invested $1 billion in acquiring and researching ZK-related technologies.
Competitive Landscape and Challenges
Despite its strong brand and incubated projects, Polygon faces intense competition in the L2 space. According to L2Beat, Arbitrum leads with a TVL of $6.07 billion, followed by Op Mainnet at $2.3 billion, zkSync Era at $600 million, and Polygon zkEVM at $56.64 million.
Beyond external competition, Polygon has faced internal challenges. MATIC has been classified as a security by the SEC, and the team has experienced frequent executive changes.
Some users speculate that POL might be a strategic response to SEC regulations. Others worry that issuing a new token could provoke further regulatory scrutiny.
Since February, when Polygon Labs announced a 20% reduction in workforce, executive departures have been frequent. Co-founder Anurag Arjun resigned and acquired Avail, a modular blockchain project initially part of Polygon. Research lead Prabal Banerjee also joined Avail. On July 7, CEO Ryan Wyatt announced his resignation, with Chief Legal Officer Marc Boiron taking over as CEO.
While these changes haven't caused significant market upheaval, frequent leadership transitions can impact strategic direction and development. In the highly competitive L2 market, Polygon 2.0 will need to rapidly expand its ecosystem to regain momentum.
Frequently Asked Questions
What is the difference between MATIC and POL?
MATIC is the current native token of the Polygon network, while POL is its upgraded version set to operate across the entire Polygon 2.0 ecosystem. POL introduces a new tokenomics model with an annual emission rate of 2% for validator rewards and ecosystem support.
How will the upgrade from MATIC to POL affect holders?
Existing MATIC holders can convert their tokens to POL at a 1:1 ratio. The upgrade aims to enhance utility and support long-term ecosystem growth, though some holders are concerned about potential value dilution due to the emission model.
What are the main use cases for POL?
POL will be used for staking, validating transactions, generating zero-knowledge proofs, and paying gas fees on certain chains. It is designed to be a hyperproductive token, allowing holders to participate in multiple roles across the ecosystem.
Why is Polygon introducing a new token instead of improving MATIC?
The team believes that the new tokenomics model is necessary to support the long-term growth and maturation of the Polygon ecosystem. The emission rate ensures sustained funding for validator incentives and ecosystem development.
How does Polygon 2.0 compare to other L2 solutions?
Polygon 2.0 is a multi-chain ecosystem powered by ZK technology, offering unlimited scalability and unified liquidity. It competes with other L2 networks like Arbitrum, Optimism, and zkSync but aims to differentiate itself through its modular architecture and interoperability features.
What are the risks associated with the upgrade?
Potential risks include regulatory scrutiny, community dissatisfaction with the emission model, and intense competition in the L2 space. The success of Polygon 2.0 will depend on its ability to attract developers and users to its ecosystem.
👉 Explore advanced staking strategies
👉 Learn more about multi-chain ecosystems
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and make independent decisions.