What is Polygon?
Polygon (formerly Matic Network) arose out of a desire to address some of the inefficiencies of Ethereum. Namely, Polygon exists as “a protocol and a framework for building and connecting Ethereum-compatible blockchain networks.”Specifically, Polygon seeks to address several pain points of the Ethereum user experience by offering features like: one-click deployment of blockchain networks, including modules for customization and enabling interoperability (i.e. ability to work together and share information) with other blockchain networks, and optional “security as a service” via Ethereum validation processes. Ultimately, Polygon’s goal is to make it easier for DeFi protocols to compete with the UX and accessibility of centralized platforms.
The rebrand from Matic to Polygon was precipitated by a change in the team’s ambitions. While Matic was simply a 2-layer scaling solution for Ethereum, Polygon “is the infrastructure for a network of massively scaling, collaborative blockchains that retain their self-sovereignty.” Polygon was founded by Jaynti Kanani, Sandeep Nailwal, and Anurag Arjun in late 2017 and has since grown its team and taken on investments from investors such as Mark Cuban.
What is the MATIC token?
MATIC, the native token of Polygon, is an ERC-20 token running on the Ethereum blockchain. Fees paid through use of the Polygon network are paid in MATIC, such as transaction fees on sidechains, and MATIC also serves as the central settlement currency between users of the network.
Similar to many other crypto protocols, the Polygon network’s governance is distributed by conveying voting rights to every MATIC holder (1 token: 1 vote). Validators stake their MATIC tokens as collateral to become part of the network’s Proof-of-Stake (PoS) consensus mechanism (how network transactions are validated) and receive MATIC tokens in return. MATIC tokens are released monthly as per a schedule agreed to by the Polygon community.
How does MATIC compare to Bitcoin?
MATIC differs from BTC on several levels.
MATIC is an ERC-20 token running on the Ethereum blockchain. This means that MATIC does not have its own miners. Ethereum miners perform the task of processing and validating Matic transactions, just like how Bitcoin miners process and validate bitcoin transactions. In contrast, MATIC tokens are released by the protocol on a pre-determined set schedule.
Relative to Bitcoin, which was first launched in 2009, the Polygon network is still in its infancy — its initial private sale was in 2017, while an April 2019 launchpad sale made further tokens available. As with most newly traded assets, one can expect to see significant volatility.
Bitcoin, the coin with a larger market (by a long shot), can influence the price of all other cryptocurrencies. If Bitcoin crashes, there’s a good chance that MATIC will feel the burn too (not directly as they operate entirely distinctly, but through overall market sentiment.) And if Ethereum, the coin that powers the blockchain that supports MATIC, crashes, then MATIC’s price could be impacted. However, if MATIC crashes, Bitcoin may be less likely to get hurt by virtue of its size.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Polygon, including an opinion that MATIC is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of MATIC prior to making it available on Wealthsimple Crypto and has concluded that MATIC is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated MATIC based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of MATIC, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created MATIC;
- The supply, demand, maturity, utility and liquidity of MATIC;
- Material technical risks associated with MATIC, including any code defects, security breaches and other threats concerning MATIC and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with MATIC, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of MATIC.
Like all other crypto assets, there are some general risks to investing in MATIC. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. In addition to these general risks, we note that MATIC presents an elevated short history risk and an elevated concentration risk. Further, the Polygon community is not under any legal or regulatory obligation to disclose material information to the public regarding its activities. Holders of MATIC have no recourse to Polygon or Wealthsimple if MATIC declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading MATIC. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: July 26, 2021