Inflows and Outflows on Polygon
Analysis
- For this analysis, I choose to look at ETH and USDC. I chose USDC because it's one of the popular stablecoins.
- Looking at the inflows and outflows, there's a healthy amount of ETH and USDC moving between the two networks.
- Until June 20th, most of the daily netflow is positive i.e. moving into Polygon. After June 20th, people seem to have started taking profits as the worries of a bear market set in and we see close to 0 netflow and in many cases large negative spikes i.e. funds moving to Ethereum.
- There is a large spike on July 20th, when about 469M USDC moves into Polygon! Talk about whaling!
Why Polygon exists?
Ethereum has had an enormous inflow of new users in recent months, with over 3 million unique addresses created over the last 30 days. While growth in the Ethereum ecosystem has been positive for the market as a whole, it has also demonstrated some of the notable shortcomings of Ethereum. For one, decentralized applications or Dapps have become notably expensive. With the average DEX transaction costing over 100 Gwei or $10 based on data from ethgasstation.com, the barrier to entry has become increasingly high for many around the world. While one possible solution, Ethereum mainchain upgrades, has been given a lot of attention in recent months due to the upcoming Ethereum 2.0 Upgrade scheduled for later this year, another possible solution, Ethereum sidechains, may offer a more efficient solution. The side chains for Layer 1 platforms like Ethereum have collectively been named Layer 2 (L2) scaling solutions. These L2 platforms are built on top of existing L1s and look to add sidechain functionality to reduce transaction costs and enhance speeds.
What is Polygon?
Polygon ($MATIC) is an L2 scaling solution built on Ethereum with the goal of remedying some of the most significant barriers to Dapp adoption: speed, scalability, and usability. Polygon calls itself the “Ethereum’s internet of blockchains” as users on Polygon can create off-chain transactions for payments and smart contract interactions. Polygon takes a unique approach to L2 scaling influenced by plasma, which is a proposed L2 scaling solution that involves creating a tree-like set of “child blockchains” that use the Ethereum blockchain as a trust and arbitration layer. Child blockchains help reduce transaction costs by allowing many transactions to be batched before being sent to the Ethereum blockchain.
Matic uses something called MoreVP (More Viable Plasma), which allows for assets on the Ethereum blockchain to stay in place while transactions on the L2 can happen on a separate proof-of-stake network. Matic has multiple sidechains, and each is EVM-enabled which allows for smart contracts to be deployed and interacted with at a far lower cost than on the Ethereum mainchain.