Polygon (MATIC) (3 Part) The Risks of Polygon Polygon isn't t | Crypto Great | Bitcoin | DeFi

Polygon (MATIC) (3 Part)

The Risks of Polygon
Polygon isn't the only blockchain project that is fast, low-cost, and EVM compatible. Harmony has a similar two-second block time and extremely low fees. Another Layer 2 blockchain called xDAI is also being developed for speed and low fees with EVM compatibility. However, xDAI only has $16 million of total value locked ("TVL") on its sidechain. That's about one-twelfth the size of Polygon's $200 million TVL. But xDAI has attracted a number of projects to adopt its technology, so it could grow rapidly.

While TVL isn't a perfect predictor of future use, it's an accurate gauge of the network effect. So Polygon should grow faster than xDAI because Polygon is already seeing more usage. Another risk Polygon faces is from Ethereum.

Everyone is trying to solve Ethereum's major problems of cost and speed – even Ethereum itself. One possibility is Ethereum 2.0 – when Ethereum will break its blockchain into "shards" – a series of blockchains that run parallel and are kept in synch by a "beacon chain." But it will still be a while before Ethereum 2.0 launches.

Until Ethereum 2.0 launches, Ethereum Improvement Proposal #1559 (EIP 1559) has been proposed to drastically reduce Ethereum network fees. If EIP 1559 reduces fees, it could be a possible threat to Polygon. But we have to keep two things in mind...

First, the Ethereum developer community has reached a "rough consensus" to implement EIP 1559 and add it to the Ethereum code in July. So it's still months away. And it's impossible to predict what will happen to the Ethereum network if EIP 1559 slashes fees without increasing throughput. Ethereum's network is already crowded. If you slash fees, the crowding will likely get even worse.

We don't know what the Ethereum miners would do in response. Remember, the fees Ethereum miners have been collecting have been growing lately. That's bad for users, but great for miners. As someone who has mined Ethereum in the past, I think the prospect of earning
signicantly lower fees for processing more transactions will make miners disconnect from the Ethereum network. This could have unpredictable and wide-ranging consequences for the network, so it can't be taken lightly. Whatever solution Ethereum launches, it will have to account for high enough fees to satisfy the miners. That means EIP 1559 isn't going to make Polygon useless.

How Big Could Polygon Get?
Because gas fees have become extremely high, the adoption of Layer 2 solutions could happen faster than anyone expects.

With the launch of optimistic rollups and zk-rollups, we could see a mass migration of popular DApps like Uniswap (UNI) and Synthetix (SNX) move from the main Ethereum blockchain onto much faster Layer 2 solutions. If that happens, exchanges like Coinbase and BinanceUS will likely support deposits and withdrawals directly from and to Layer 2 solutions as well. Many users who start investing in crypto a year from now may never touch a DApp that's running on the main Ethereum blockchain. Instead, their rst interactions could be with Layer 2 solutions. And Polygon could be the leader in this space. We believe Polygon could see at least a fourfold increase – and possible as much as a sevenfold increase – in as little as 24 months.