Polygon (MATIC), which used to be called Matic Network before a name change in Feb, is a layer-2 (L2) scaling solution for ETH that aims to lighten the load on ETH’s main layer-1 (L1) network, offering ETH users a cheaper and faster alternative while still enjoying the security that the ETH network provides.
L1 is a term that’s used to describe the underlying main blockchain architecture. L2, on the other hand, is an overlaying network that lies on top of the underlying L1 blockchain. Transactions are submitted to these L2 nodes instead of being submitted directly to L1, where L2 then batches them into groups before anchoring them to L1, after which they are secured by L1 and cannot be altered.
MATIC as a L2 build on top of ETH, solves the scaling issues that has been plaguing the ETH blockchain. Overwhelming demand from DeFi and NFT has caused the high fee and bottleneck problems surrounding ETH to intensify greatly, leading some projects to seek alternative solutions. This has led to an explosive growth in the adoption of MATIC as more and more ETH-based projects move to build on MATIC.
CRV and AAVE, two very popular DeFi projects on ETH have already moved onto MATIC. In a sign of the times, last Tuesday, DeFi yield protocol mStable also announced that it was embracing the L2 solution provided by MATIC.
The reduction in user transaction fee after projects move to MATIC is anticipated to increase the TVL for projects that have moved to MATIC. This has been proven in AAVE where its TVL rose $1 billion in just 3 weeks after integrating with MATIC, an increase of 15%. AAVE’s TVL is currently around $8 billion and is expected to continue growing strongly.
AAVE’s success has led many other projects to follow suit, with big name projects like Pooltogether, Sushiswap, Open Sea, Curve Finance, Decentraland, and loads of other DeFi projects also confirming last week that they already have, or are in the midst of integrating with MATIC.
Building on its newfound success, MATIC also went on to launch a $100 million fund last week named DeFiForAll, a campaign aiming to accelerate the adoption of DeFi by making it more accessible to users. The fund hopes to support the growth of top DeFi projects on ETH with the objective of bringing in millions of new users to the various platforms through scaling on MATIC, which reduces the cost associated with using DeFi, making it attractive to even very small investors. The fund has been programmed to support DeFi for the next 3 years and is estimated to bring in at least 1 million new users to DeFi. The total number of users on DeFi is estimated to be around 1 million currently, but has a total TVL of $120 billion. With an additional 1 million users, this project could bring in another $100 billion or more to DeFi.
The series of positive news brought sentiment to a high as investors rushed to purchase the MATIC token, expecting demand for it to increase exponentially due to the sheer number of projects that will be joining the network. As a result, the price of MATIC tripled in just last week alone. Despite the large price increase, many experts still think the token is undervalued, with many predicting a price of at least $2 for the token by the end of May.
Will MATIC really hit $2 by the end of May? Let us look at what the charts are saying.
Even though MATIC price surged 300% over the course of one week, its RSI is not overbought. This is because there were periods of rather significant pullbacks of between 10% to 20% after every surge, which allowed prices to cool off before attempting to break the next level. This is a sign of a very strong rally which has not ended. Price is moving in a rising trend channel with a price objective of around $2.00. MATIC is currently consolidating around the $0.80 level after testing the 38.2% retracement of $0.74 and bounced from there. Should price move up from here to break $0.85, it is a very bullish sign which may likely send prices testing $0.95 and move higher. Should a deeper retracement happen, $0.74 may be revisited, followed by the 50% retracement level of $0.67 if $0.74 does not hold. These levels are good areas of entry should MATIC pullback, while a surge back above $0.85 is a sign that the retracement is over and MATIC will likely continue higher.
About Kim Chua, PrimeXBT Market Analyst:
Kim Chua is an institutional trading specialist with a track record of success that extends across leading banks including Deutsche Bank, China Merchants Bank, and more. Chua later launched a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also an educator at heart who developed her own proprietary trading curriculum to pass her knowledge down to a new generation of analysts. Kim Chua actively follows both traditional and cryptocurrency markets closely and is eager to find future investment and trading opportunities as the two vastly different asset classes begin to converge.