On July 13th, Polygon, the Ethereum scaling solution, officially announced as part of the Polygon 2.0 roadmap, a proposed technical upgrade to its native token MATIC. The proposal suggests that MATIC will be convertible to POL. The new POL token aims to operate across all networks within the Polygon ecosystem, including Polygon PoS, Polygon zkEVM, and various subnets.
According to the proposal, the upgrade path from MATIC to POL will be straightforward. Token holders will simply need to send their MATIC to a specific smart contract, which will then return an equivalent amount of POL. To ensure holders have sufficient time to complete the conversion, Polygon proposes a grace period of at least four years.
Key Narrative: Third-generation token
In the official announcement regarding POL, Polygon positions it as the third-generation token after BTC and ETH.
Polygon believes that in the era of the internet, contributors to open-source protocols often struggle to receive appropriate value feedback. The emergence of blockchain and tokens has effectively addressed this issue, enabling open-source protocols to sustain themselves and gradually grow.
BTC was the first token to succeed in a meaningful sense. However, despite playing a crucial role in the Bitcoin protocol, it is an asset that does not generate returns. It does not grant any roles to its holders within the protocol nor incentivizes them to perform such roles.
ETH, as a second-generation token, improved upon this, thus Polygon positions it as a "productive token." The income-generating properties of ETH enable its holders to become validators within the protocol, perform respective work, and receive corresponding rewards.
As a third-generation token, POL takes another step in this aspect. Polygon positions it as a "hyperproductive token." In addition to the income-generating properties that can assign holders specific roles (validators) and enable them to earn income (validation rewards), POL also makes critical improvements in two aspects:
Validators can validate multiple chains (such as Polygon PoS, Polygon zkEVM, and various subnets);
On different chains, POL can assign different (or multiple) roles to holders and provide corresponding rewards. (Note: Here's a simple explanation, for example, on the Polygon PoS chain, POL holders can act as validators to receive transactions and generate blocks; while on the Polygon zkEVM chain, POL holders can act as provers to generate and submit zero-knowledge proofs, and the validation modes of various subnets are also different.)
Polygon represents that this innovative design ensures the security of the entire Polygon ecosystem, coordinates and aligns the various components with different technical structures under its matrix, which is expected to further drive its growth, and in turn, opens up new possibilities for POL.
Hidden Detail: Supply Issue
With MATIC upgrading to POL, in addition to the Polygon PoS chain that originally used MATIC as the native token, POL will also become the native token of Polygon zkEVM and other new chains in the future.
This means that it will become a catalyst for the operation and development of new scenarios, which will inevitably cause a problem — Can the token economic model originally designed for Polygon PoS (formerly Matic Network) adapt to the new development stage? And the most crucial point here is whether the originally fixed supply limit of 10 billion MATIC tokens needs to be adjusted, otherwise, considering that MATIC is almost fully circulating (93%), POL may not have enough capital to "manage" other networks.
In this regard, the official announcement about POL only gave a brief answer — "It is recommended to introduce a continuous POL emission mechanism to support the community treasury."... Wait, doesn't this mean breaking the 10 billion limit and continuing to issue more tokens?
To answer this question, Odaily also reviewed the white paper documents of POL, where we found a detailed explanation about this issue, and the next is the description of the "Supply" chapter in the white paper.
In this section, Polygon specifically mentions that the supply model of POL will consist of two parts: initial supply and continuous issuing. The initial supply will be set at 10 billion, and this initial supply will come entirely from the upgrade conversion of MATIC.
As for the crucial part of continuous issuing, Polygon mentions that POL will be continuously issued at a predetermined and deterministic rate, for two purposes: validator rewards and ecosystem support.
Regarding validator rewards, in order to incentivize validators to join and stay, POL will be continuously issued at a predetermined rate and distributed as protocol rewards to validators. Polygon proposes setting the annual issuance rate of POL for this purpose at 1% of the supply. During the first 10 years, the issuance rate cannot be changed. Afterwards, the community can use governance frameworks to decide to reduce this value in any way, but the annual issuance rate will never exceed 1%.
Regarding ecosystem support, in order to sustain the further development and growth of the Polygon ecosystem, Polygon proposes the introduction of a community treasury, which will be governed by the community and serve as an ecosystem fund. Similar to validator rewards, Polygon also suggests setting the annual issuance rate of POL for this purpose at 1% of the supply. After 10 years, it can be adjusted through governance frameworks, but it will not exceed 1%.
Polygon explains that the reason for these proposals is that the Polygon ecosystem and Web3 as a whole still need time to mature further and achieve mainstream adoption. Based on the adoption cycles of the internet and computing platforms in history, the mature stage may take approximately 10-15 years, during which the ecosystem will need continuous economic support.
Once the Polygon ecosystem and Web3 reach the mature stage, the transaction fees and other incentives obtained by validating on various chains under Polygon will be sufficient to provide adequate returns. Once this happens, the community can decide to reduce or completely stop the issuance for validator rewards. Similarly, once the ecosystem no longer requires additional economic support, the community can decide to reduce or stop the issuance for the community treasury.
However, the adoption cycle of Web3 may differ slightly or be completely different from that of the internet. If it proves that reaching mainstream adoption takes longer and the ecosystem still requires support after 10 years, the community can choose not to intervene or adjust the issuance rate as needed.
Polygon believes that this issuance strategy is the best solution for the entire Polygon ecosystem, as it "balances ecosystem support and token scarcity." Regarding scarcity, Polygon's reasoning is that BTC, which has been around for over 10 years, still has an issuance rate of 1.8% and will continue to issue more in the next century, while the issuance rate of POL, although 2% in the first 10 years, is expected to decrease or even stop after 10 years. Considering that Bitcoin is considered a very scarce asset, POL, which has the same or potentially lower issuance rate, should also be considered scarce enough.
Perhaps this is just an inevitable choice
It can be concluded that by upgrading MATIC to POL, the Polygon ecosystem will be able to obtain new chips through token issuance, thereby supporting the operation and development of new networks such as Polygon zkEVM.
For a project like Polygon, which evolves from a single chain to a multi-chain matrix, taking this step may seem sudden, but it is not too surprising. Especially after the launch of Polygon zkEVM mainnet, as the focus of Polygon's future development, introducing a native token to the network is a problem that Polygon must face.
At this point, Polygon has several options, such as directly continuing to use MATIC, but this will inevitably lead to the problem of "incompatibility between the old model and the new stage" mentioned above; or issuing a new coin, but this would create differences in interests among the chains within the ecosystem, which could lead to more complicated disputes; or considering directly using ETH, but this would lead to excessive economic burden (you can't keep incentivizing with ETH) and also cause certain alignment issues of interests.
In conclusion, for Polygon, the first option is clearly more controllable and feasible. They just need to counter the concerns caused by token issuance with the new vision of the new token (painting a new picture).
As of the time of writing, MATIC has increased by 2.52%. Judging from the current market feedback, the results are quite good.
