Polygon (MATIC), a layer 2 scaling solution for the Ethereum blockchain, is in an interesting position. Messari’s latest data shows a network brimming with activity, with daily active addresses surging nearly 120%, new user sign-ups surging 70%, and daily transactions reaching a whopping 4 million. But beneath this busy surface lurks a troubling undercurrent. Quarterly sales decreased by 19% compared to the previous quarter and by 40% compared to the previous year.
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Polygon: Network on Fire
Polygon’s user base was clearly shocked. The first quarter of 2024 was a big one, with new addresses flooding into the network at an unprecedented rate. This surge in user adoption led to a trading frenzy that quadrupled daily interactions on the platform.
Polygon’s decentralized finance (DeFi) sector also thrived, with total value locked (TVL) of DeFi projects increasing by 30% compared to the previous quarter. Polygon’s Non-Fungible Token (NFT) ecosystem has also seen success, with sales increasing by nearly 20%.
profit conundrum
So why is there a long face among the celebratory confetti? The answer lies in Polygon’s declining revenue streams. Even as activity grows exponentially, the network’s coffers are taking a hit.
The $7 million it earned in the first quarter of 2024 is nothing compared to the $10 million and $12 million it earned in the previous quarter and the same period last year, respectively. This disconnect between increased activity and declining sales is the million-dollar question that has analysts scratching their heads.
MATIC market cap currently at $6.8 billion. Chart: TradingView.com
Fee failure or funds flow?
There are two main suspects behind this revenue paradox. The first cause may be Polygon’s transaction fee structure. Perhaps to attract more users, the network lowered its fees to the point where overall monetization was struggling despite the massive increase in transactions.
Another possibility lies in a potential change in Polygon’s revenue sources. Perhaps the decline in income from certain sources, such as grants or partnerships, has not been adequately compensated by growth in other areas.
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what will happen next
Polygon is at a critical juncture. The network’s ability to attract users and foster a vibrant DeFi and NFT ecosystem is undeniable. But failure to address revenue challenges could put long-term sustainability at risk. Going forward, Polygon’s transparency regarding its fee structure and revenue streams will be critical to allaying investor concerns.
Additionally, exploring alternative revenue models, such as offering premium services or strategic partnerships, could be key to unlocking Polygon’s full financial potential.
Featured image from Zameen.com, chart from TradingView