Polygon (Matic)

Author: Noah Bortnick
PostedWhileAt: Blackbox Digital Asset
Management
Report Generated By
Polygon
Recommendation:Long
Post Ethereum Merge, the scalability and infrastructure
contributions by the Polygon Network continue to be an
integral component to Web3. MATIC may appreciate 5-10x
during the next cycle.
EXPECTED RETURN TIMEFRAME POSTED
417.7% 2 Years To 5 Years 9/28/2022

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About Noah Bortnick
Noah Bortnick is the Co-Founder and COO of Blackbox Digital Asset Management LLC, a multi-strategy digital
asset hedge fund and financial services firm in Kansas City. Since 2017, Noah has closely researched, analyzed the
utility of blockchain technology, and allocated capital to innovative cryptocurrencies, digital assets, and DeFi
protocols. Before starting Blackbox Digital Asset Management, Noah earned his undergraduate degree from the
University of Kansas and M.B.A. from Rockhurst University in Kansas City. Through his unique understanding of
emerging asset class, Noah firmly believes that the innovative capabilities of blockchain technology and the
decentralized economy will finance at levels of investment. Noah's has worked with a wide range of clients,
including small businesses, family offices, RIAs and high-net-worth investors. At Blackbox, Noah seeks to create
innovative strategies for institutional investing in cryptocurrencies, digital assets and yield generation via compliant
DeFi protocols/opportunities. Blackbox Digital Asset Management focuses on identifying new opportunities in the
emerging blockchain ecosystem and providing an institutional gateway to the digital future of finance.

Polygon
Asset Class: Crypto Symbol: MATIC Updated: 9/28/2022 Posted: 9/28/2022
BY:
Noah Bortnick
CURRENTLY AT
Blackbox Digital Asset Management
COMMUNITY RATING: 9 VOTES PERCENTILE: 69%
Post Ethereum Merge, the scalability and infrastructure
contributions by the Polygon Network continue to be an integral
component to Web3. MATIC may appreciate 5-10x during the
next cycle.
Return Performance
RETURN TO DATE: -4.5
%
EXPECTED
RETURN:
417.7%
IRR: N/A
RETURN VS.
BENCHMARK:
(S&P 500)
-7.4%
Pricing Details LONG
RECENT PRICE:
0.93 USD
10/25/22 at 12:00AM
TARGET PRICE: 4.40 USD
INITIAL PRICE:
Pending...
9/28/22 at 02:14AM
CLOSING PRICE: N/A
ASSET CLASS:
Crypto
SITUATION:
Relative Value
TARGET ALLOCATION:
5% - 10%
CATALYSTS:
N/A
TIMEFRAME:
2-5 Years
Fundamentals
CURRENCY United States Dollar
52 WK. RANGE N/A
MARKET CAP USD
EV N/A
TOTAL CASH N/A
TOTAL DEBT N/A
BOOK VALUE PER SHARE N/A
THREE MO. AVG. DAILY VOLUME (USD) 0
SELLSIDE CONSENSUS N/A
Mutiples/Ratios
LTM P/E N/A
FORWARD P/E N/A
EV/EBITDA N/A
EV FCF N/A
EV SALES N/A
PRICE BOOK N/A
FCF YIELD N/A
DEBT BOOK N/A
DIV YIELD N/A
Additional Data
SECTOR Digital Assets
INDUSTRY
COUNTRY United States
REGION North America

Thesis
The Polygon Network
Authors: Noah Bortnick, Tucker Sutton & Tristan Threatt
Introduction:
Polygon aims to enable the growth of a multi-chain ecosystem by providing a simple-to-use framework that allows
developers to launch custom EVM blockchains easily. A multidisciplinary team led by four co-founders — Jaynti
Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic — created the Polygon Network (originally the Matic
Network) in 2017. Kanani, an experienced developer with a penchant for scaling mechanisms, initially served as
Polygon's CEO, whereas the rest of the team brought a wealth of experience building, managing, and growing tech
firms. From an external support standpoint, the Polygon Network’s initial investors included: AU21 Capital, Alameda
Research, Binance Labs, and Coinbase Ventures.
At inception, the Polygon Network's core goal was to promote blockchain infrastructure development by scaling the
capabilities of the Ethereum (ETH) blockchain and its decentralized applications ("dApps"). Layer-1 ("L1")
blockchains (e.g., BTC and ETH) can often face high latency, excessive transaction costs (gas fees), and inefficient
design elements that impede developer collaboration, the user experience, and ultimately mainstream adoption. The
Polygon Network sought to counteract Ethereum's scaling limitations without sacrificing the blockchain's
decentralized community and ecosystem. When ETH’s PoW main-net and upgraded PoS Beacon Chain fully
merged, The Ethereum blockchain improved by eliminating the need for energy-intensive mining (PoW) and
securing the network via staked ETH, thereby making Ethereum more secure, scalable, and sustainable. While these
enhancements aim to increase Ethereum's productive capacity drastically, Polygon continues to function as a Layer-
2 (“L2”) scaling solution that further expands the necessary scalability and user/developer experience for dApps
built on the Ethereum blockchain to thrive.
The Polygon Network has evolved to envision a world where distinct blockchains can freely and easily exchange
1
2

value and information. The scope of the project expanded from a simple L2 scaling solution for Ethereum to the
underlying infrastructure necessary for a network of massively scaling, collaborative blockchains that retain their
self-sovereignty. Through a discussion of the use cases, tokenomics, and market outlook, we seek to demonstrate
the value proposition of the Polygon Network and the associated economic impact on the native MATIC token.
The Polygon Network: Bluechip Scaling Solution and Infrastructure
The complexities of distributed ledger technology and the digital asset markets require questioning a variety of
factors, such as (not limited to):
Where does the project fit into the blockchain ecosystem?
How does the project add value?
Is the value able to be sustained for long-term growth?
What is the project’s tokenomics?
What is the historical and projected asset performance?
With these items in mind, sentiment analysis of retail cryptocurrency and blockchain investors on social media
platforms/search engines reveals mainstream opinions surrounding Polygon's value proposition are relatively
divided. While consensus is uncertain, based on the factors listed above, we believe even with Ethereum's transition
to Proof-of-Stake, Polygon's purpose as an L2 scaling platform still provides enormous utility to its L1 counterpart by
enhancing the following components :
Scalability: Fast, low-cost, and secure transactions on Polygon sidechains with transparency achieved on-chain, using Ethereum as the base layer
to create greater UI/UX dApps on the Polygon Network.
3
4

High throughput: High level of throughput with up to 7,000 transactions-per-second ("TPS") on a single sidechain on an internal test net; Multiple
chains can be added for horizontal scaling.
User experience: User-friendly UX and developer abstraction from Ethereum to Polygon chain; native mobile apps and SDK with WalletConnect
support
Security: Polygon chain operators are themselves stakers in the PoS system
Public sidechains: Polygon side chains are public (vs. individual dApp chains), permissionless, and capable of supporting multiple protocols
Overall, Polygon has created a flexible framework (Polygon SDK) that has effectively transformed the Ethereum
ecosystem into a multi-chain ecosystem. This platform promotes the growth of Web3.0 by allowing developers to
build scalable applications on L2 infrastructures. Many crypto-native individuals and companies have started to
prefer to operate on Polygon-based DeFi applications due to their superior user experience and affordability. The
diagram below illustrates where Polygon fits into and supports the Ethereum ecosystem:
Polygon Network Framework (Polygon SDK)

The Ethereum Merge and the Polygon Network
The Ethereum Merge and transition to a PoS consensus mechanism will benefit the DeFi ecosystem and the Polygon
Network. Generally, the nature of Polygon's relationship to Ethereum will be largely unaffected by the Merge as
many of Polygon’s key features will still provide value to Ethereum:

Polygon PoS: MATIC token holders will still be able to gain rewards via Polygon's proof-of-stake mechanism.
Polygon Bridge: Assets bridged on and off the Polygon Network will still effectively transition assets onto the L2 solution (and back onto the
Ethereum L1 counterpart)
Gas Fee Reduction: Gas Fees will not be significantly reduced on the ETH blockchain because of the Merge; therefore, fees associated with the
Polygon Network will remain substantially more affordable, offering an incentive for users and developers
Speed: The speed of transactions will be improved on the ETH blockchain, ultimately improving the UX on Polygon
Security: Security of the Ethereum network will be enhanced, boosting developers’ ability to create more secure dApps on the Polygon Network
Sustainability: The Polygon Network’s initiative and pledge for environmental sustainability will be supported by Ethereums’s reduced energy
consumption
Tokenomics & Supply
(As of 9/8/2022)
Market Capitalization: $7,707,989,163
Fully Diluted Market Capitalization: $8,824,947,324
Circulating Supply: 8.73B MATIC
Percentage of Supply in Circulation: 87.30%
Max Supply: 10B MATIC
Total Supply: 10B MATIC
Token Burn Rate (Annualized): 0.27%
Current Price (USD) $0.84

Issuing Price $0.01
Price ATH $2.90
MATIC Liquid Supply
MATIC is primarily used to (1) pay transaction fees on the network – MATIC is a utility token that can be used as
payment on the Polygon Network (2) staked to participate as validators and earn rewards – Polygon Network
sidechains enforce consensus using a Proof-of-Stake (PoS) layer. With a series of scheduled "unlocks," MATIC's
entire (maximum) supply of 10B tokens was issued at inception in April of 2019 (only about 8B are currently in
circulation). The remaining ~2B tokens will be unlocked periodically over the next 3-4 years, mainly to be paid out
through staking rewards. Furthermore, its hard cap and burn mechanism make MATIC deflationary, relieving the
asset of excess supply-side sell pressures caused by further issuance; this tokenomics structure is very appealing
with the backdrop that 87% of the supply is already in circulation.
Outlook
5

While speculating on token price can be a dubious endeavor, it is essential to account for various catalysts and
constraints in deciphering where the price of an asset may go in the future. We've provided an overview of a few
key factors to consider.
Adoption
The number of users transacting on the Polygon Network has been skyrocketing, propelling MATIC past even Ethereum at times throughout
2021 in both users and the number of transactions completed. Furthermore, the total value locked (TVL) across dApps on the network has
grown from under US$1M at the beginning of 2021 to over $1.7B as of July 2022 (across ~19K dApps, with the top 10 accounting for ~82% of
the TVL). We've highlighted several other relevant adoption metrics below:
Active Wallet Addresses: 300,000+
Unique User Addresses: 140M+
Transaction Volume: 2,000,000,000
Total Transactions: ~4B
Applications Hosted: 37,000+
Assets Secured: $5B+
Active Validators: 135M+
Delegators on PoS: 1.8B
Total Matic Staked: 145K+ MATIC
Avg Daily Gas Saved: $140M
Hiring:
While most large players in the crypto industry are laying off workers to cut operational costs in this market downturn, MATIC is instead hiring
additional staff; planning to add another 200 employees (primarily engineers and business development/partnerships) before the end of the
year.
6
7 8

Polygon has also seen a significant increase in both the number of monthly developers and active contributions. By the end of 2021, Polygon
reached 250+ developers, a number representing an increase of more than 2x, while Cardano was +90%, Binance Smart Chain was +80%,
Cosmos was +70%, and Bitcoin was +10%.
Furthermore, between January 2021 and July 2022, the number of active contributors increased by nearly ~5x, along with a measure of
GitHub activity increasing over ~3x since the beginning of 2021. This growth in activity led Polygon to outpace competing L2s and alternative
L1s such as Optimism (~3x and ~1.7x respectively), Solana (~3x and ~2.4x respectively), and Avalanche (~3.9x and ~1.5x respectively).
Partnerships
Polygon has been exceptional at securing commercial partnerships with large corporations focused on various projects, including payment
systems and NFT marketplaces. We have provided a summary below:
Corporate Partner Date Announced Purpose/Mission
DraftKings Oct. 2021 NFT marketplace; DraftKings also runs a validator node with ~55M staked MATIC
Ticketmaster/NFL Nov. 2021 NFTs of "virtual commemorative ticket stubs."
Adobe Mar. 2022 NFT integration (mint/display) for the Behance social platform
Stripe April 2022 Enabling USDC payments via Polygon
Meta May 2022 Piloting NFT integration for Instagram
Nothing July 2022 NFT crowdfunding/access passes; building a blockchain-enabled smartphone
Flipkart July 2022 NFT drop on e-commerce marketplace based in India
Reddit July 2022 NFT marketplace
Disney July 2022 Chosen to participate in Disney's 2022 Accelerator Program aimed at developing AR, NFT, and AI exp
9
10
11

Price history
In 2019, MATIC rose from $0.003 to $0.45, a 1,612% increase over 224 days. In 2021, MATIC rose from $0.18 to $2.90, a 14,551% increase over
133 days. Basic extrapolation of these percentage gains and lengths of time is not worth mentioning due to its current market capitalization
and maturation. While it is challenging to expect price movements to reach the same growth as previous cycles, data suggests appreciation
based on historical data and fundamental adoption metrics.
Volume
MATIC’s trading volumes have been down-trending during the current global bear market, but when zooming out, they have been
continuously rising since inception. Over the past year, MATIC's trading volume peaked at approximately $25.1 billion while at a token price of
$2.88 on 12/26/20221. Since the end of 2021, daily trading volume has decreased, ranging between $350 million to $957 million, with a YTD
daily average of $812,918,051.

Technical Analysis Metrics
MATIC has not been exempt from the sell-side pressure of the bear market affecting cryptocurrencies and global markets broadly. It is
currently between two key moving averages (MA's), the 200 daily simple moving average (SMA) and the 100 daily SMA. Investors can expect
lower price action over the coming months; a great place to begin accumulating MATIC would be around the $0.30 - $0.40 price range.
Fundraising & Valuation
Polygon has undergone three fundraising rounds since its initial pre-seed in April 2020. Most recently, as Polygon was sitting around a 13B
market cap in February of this year, Sequoia Capital India led the rapidly growing network through a $450 million capital raise with
investments from several major firms and first-time blockchain investors, including Tiger Global, SoftBank, Galaxy Digital, Alameda Research,
and Animoca Brands.
In terms of a complete valuation, the industry is still evolving beyond various forms of speculation, given the nascency of the technology.
Furthermore, with such a wide variety of economic incentives and utility, tokens are extremely unique, making structured valuation difficult.
The aspect of blockchains that is most analogous to a real-world company would be the transaction fees generated through on-chain activity,
which serves as a proxy for demand. While this metric is limited in scope (discussed later), we've outlined Polygon's price-to-sales ratio
12
13

relative to other select L1 and L2 blockchains below:
Rank Asset 7-Day Average Fees Price/Sales Ratio
1 BSC (Binance Smart Chain) $600,438 198.65
2 ETH (Ethereum) $2,137,997 205.31
3 OP (Optimism) 15972.46 269.71
4 MATIC (Polygon) $41,112 363.65
5 AVAX (Avalanche) $22,913 608.85
6 SOL (Solana) $47,613 640.79
7 BTC (Bitcoin) $298,082 3327.02
8 ADA (Cardano) $9,373 4375.88
As the table above illustrates, compared to other L1 and L2 blockchains, the Polygon Network offers a compelling balance of fee generation
and P/S premium. Polygon's P/S ratio is much lower than several other L1 blockchains and generates nearly 3x the fees of Optimism, the
competing L2 solution displayed.
In this context, it is appropriate to briefly discuss the validity of the P/S ratio when evaluating blockchains. It is our belief the extreme
premiums seen in the P/S ratio are driven by one of two things: 1. expectation of greater future sales generated by transaction fees and other
potential sources of revenue, and 2. utility provided by the token that cannot be represented on a balance sheet.
The first factor is more straightforward and primarily examines which blockchain will capture significant portions of the future market
share of decentralized computation demand being fulfilled by blockchains generally. In predicting this outcome, developer growth and
activity is most likely the strongest leading indicator given the ability for the best applications to drive network effects and user
acquisition, in turn leading to potential value accrual to the base layer blockchain. Based on P/S ratios alone, a case can be made that
Polygon should demand a market cap like Cardano and Solana, which would mark a 2-3x increase from its current market cap of ~6.5B.
The second variable, utility, is much more subjective and difficult to assess, but we believe it is the reason behind the extremely large P/S
ratios we see in coins like BTC. For example, the value of a global, non-sovereign currency is very challenging to evaluate; the closest
proxy we currently have is gold (market cap of ~11T), which is why a prominent BTC narrative is digital gold. However, the tokens within
the digital asset ecosystem serve several roles, such as providing governance rights, securing the blockchain, representing claims on
13

revenue streams, and facilitating the functionality of a protocol. Overall, we believe the limited collective understanding of the implication
of these utility sources has led to significant discrepancies in P/S ratios, rendering the metric less helpful in assessing the absolute value of
a token. P/S ratios may still be beneficial, however, in evaluating the relative opportunity of investing in one blockchain over another with
similar utility propositions.
In summary, the Polygon roadmap currently states the network will be supported by the transaction fees generated after the exhaustion of
the staking reward distribution in the next 3-4 years. As such, we believe MATIC classifies within the asset category that derives value
primarily from transaction fees and enables the blockchain to function. Therefore, the primary variable to monitor will be future transaction
volume, and we believe developer activity and application production will be the best leading indicators.
By taking the variables discussed in this report into account, one can build a more complete picture of the potential
outcomes for MATIC's price action. We are optimistic for Polygon's future on a fundamental level regarding its role
within the blockchain ecosystem and robust developer community and the MATIC token as a financial asset with the
potential to appreciate.
Please contact research@investblackbox.com if you have any questions or would like to discuss MATIC and the
Polygon Network more in-depth. Also, if you are interested in reading more of our insights and being notified about
future research pieces, you can sign up for our newsletter on our website here.

1 CoinMarketCap by Daniel Phillips

2 For context, the Ethereum Merge ("the Merge") that occurred on 9/15/2022 represents the most significant and
historic upgrade since the inception of the blockchain by transitioning Ethereum to a Proof-of-Stake (PoS)
consensus layer, known as the Beacon Chain.

3 CoinMarketCap by Daniel Phillips

4 Binance Research Polygon (MATIC)

5 Coinbase Institutional (2022)

6 Polygonscan & Etherscan

8 Polygon Network Website

9 Electric Capital Developer Report (2021)

12 Polygon raises $450M from Sequoia Capital India, SoftBank, and Tiger Global.

13 Data pulled from CryptoFees on 9/22/2022.
8

The author has not yet posted any updates for this idea.
Idea Updates

Continue the discussion
There are 7 comments on this idea. Visit https://sumzero.com/pro/research/ideas/21010 for the full discussion.
Comments
David Swartz
MORNINGSTAR SEPTEMBER 28, 2022
@[Noah Bortnick](User-30575) While the transition to proof-of-stake didn't increase ETH's transaction speed or lower fees, my
understanding is that future upgrades are expected to do these things. Will these upgrades affec...
Tucker Sutton
BLACKBOX DIGITAL ASSET MANAGEMENT SEPTEMBER 28, 2022
Yes, please find the ETH roadmap here - https://etherworld.co/2021/12/02/ethereums-latest-roadmap/. The idea that the
Merge would increase ETH tx speed and/or lower fees is a common misconception. While the future upgrades...
Portfolio Manager
$1B - $3B PRIVATE EQUITY OCTOBER 02, 2022
Are you more bullish on MATIC than ETH? How would you consider those two trades in comparison?

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