Analysis of the POL economic model: the problem of "omitted" supply

On July 13, Polygon, the Ethereum scaling solution, officially announced that it has proposed a technical upgrade to its native MATIC token as part of the Polygon 2.0 roadmap. The proposal is that **MATIC will be convertible to POL, and the new POL token is designed to run across all networks under the Polygon matrix, including Polygon PoS, Polygon zkEVM, and various subnets. **

According to the question, the upgrade path from MATIC to POL will be very simple. Token holders only need to send their MATIC tokens to a specific smart contract, which will then return an equivalent amount of POL tokens. In order to ensure that holders have sufficient time to switch, Polygon proposes to set a grace period of at least four years to complete the upgrade process.

Core Narrative: The Third Generation Token

In the official announcement about POL, **Polygon positioned it as the third-generation token after BTC and ETH. **

Polygon believes that in the Internet age, it is often difficult for contributors to open source protocols to obtain appropriate value feedback. The emergence of blockchain and tokens has solved this problem well, making open source protocols self-sustaining and gradually becoming stronger.

BTC was the first token to achieve success on a large scale. However, despite its key role in the Bitcoin protocol, BTC is a non-yielding asset — it is not included in the protocol. Its holders are not given any role, nor are they incentivized to perform such a role.

ETH has improved this as a second-generation token, so Polygon positions it as "productive tokens". The property that can generate income enables ETH holders to become validators in the protocol and perform corresponding work and receive corresponding rewards.

As the third-generation token, POL continues to take a step forward in this regard, and Polygon positions it as a "super-productive token" (hyperproductive tokens). Compared with the second-generation token, POL's income-generating attributes can also be given to the holder with a specific role (verifier) to obtain income (verification incentives), but at the same time POL also makes two aspects Key improvements were made:

• Validators can validate multiple chains** (such as Polygon PoS, Polygon zkEVM, and individual subnets);**
• ** On different chains, POL can give holders different (or multiple) roles and provide corresponding rewards. **(Note from Odaily Planet Daily: Here is a brief explanation. For example, on the Polygon PoS chain, POL holders can act as verifiers to accept transactions and generate blocks; on the Polygon zkEVM chain, POL holders can As a prover, to generate and submit a zero-knowledge proof; the verification mode of each subnet is also different.)

According to Polygon, this novel design secures the entire Polygon ecosystem, harmonizes and aligns the various components of its matrix that differ in technical construction, which is expected to further drive its growth, which in turn can also open up new opportunities for POL. imagination.

Hidden Details: Supply Issues

With the upgrade from MATIC to POL, in addition to the Polygon PoS chain that originally used MATIC as its 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 booster medium for the operation and development of some new scenarios, which will inevitably cause a problem-**The token economic model originally designed for Polygon PoS (formerly known as Matic Network) and the new development stage Can it still fit? The most critical point is whether the 100 supply limit originally set by MATIC needs to be adjusted, otherwise, in terms of the status quo that MATIC is almost fully circulated (93%), POL may not have sufficient capital to "manage" other networks . **

At this point, the official announcement about POL only gave a short answer - "It is recommended to introduce continuous POL emission (continuous POL emission) to fund community treasury"...wait, isn't that To break through the 10 billion limit, do you mean to continue to issue additional shares?

In order to answer this doubt, Odaily Planet Daily turned over the white paper document of POL, where we found a detailed explanation on this issue. In order to make it easier for everyone to understand the specific ideas of Polygon, the following is the description of Chapter 6 on "Supply" in the white paper.

In this chapter, Polygon clearly mentions that the supply model of POL will consist of initial supply and continuous issuance. The initial supply will be set at 10 billion pieces, and this part of the initial supply will all come from the upgrade conversion of MATIC.

As for the most critical part of continuous issuance, Polygon mentioned that POL will be issued at a predetermined and deterministic rate for two ways-verifier rewards and ecosystem support.

• In terms of validator rewards, in order to motivate validators to join and retain, POL will continue to grow at a predetermined rate and be distributed to validators as basic protocol rewards. **Polygon recommends setting the annual POL issuance rate for this route at 1% of the supply. During the first 10 years, the issuance rate cannot be changed, after which the community can decide to reduce this value in any way through the governance framework, but the annual issuance rate will never exceed 1%. **
• In terms of ecosystem support, in order to continue to support the further development and growth of the Polygon ecosystem, Polygon proposes to introduce a community treasury, an ecosystem fund governed by the community. **Similar to validator rewards, Polygon also recommends that the annual increase rate of POL used in this approach be set at 1% of the supply, which can be adjusted through the governance framework after 10 years, but will not exceed 1%. **

Polygon explained that this recommendation was made because the Polygon ecosystem and Web3 as a whole still needs time to further mature and achieve mainstream adoption. Based on historical Internet and computing platform adoption cycles, the maturity stage may take around 10-15 years, during which time the ecosystem will require ongoing economic support.

When the Polygon ecosystem and Web3 reach a stage of maturity, transaction fees and other incentives for validating Polygon-owned chains will be sufficient to provide sufficient rewards, **once this happens, the community can decide to reduce or completely stop spending on validators The additional issuance of rewards. Similarly, once the ecosystem no longer needs additional economic support, the community can also decide to reduce or stop the additional issuance of the community treasury. **

However, the adoption cycle of Web3 may be slightly different or completely different from the history of the Internet. If it turns out that reaching mainstream adoption takes longer and the ecosystem still needs support after 10 years, the community can choose not to intervene and continue to issue additional tokens as needed.

Polygon believes that this additional issuance strategy is the optimal solution for the entire Polygon ecosystem, because "this can achieve a balance between ecological support and token scarcity." Regarding the latter, Polygon’s reason is that the current increase rate of BTC, which has been born for more than 10 years, is still 1.8%, and will continue to increase in the next more than one world, while the increase rate of POL was 2% in the first 10 years, But it is expected to decrease or even stop after 10 years. Given that Bitcoin is considered a very scarce asset, POL with the same or even lower issuance rate should also be considered sufficiently scarce.

Perhaps, this is just an inevitable choice

Combined with the description of the white paper, it can be determined 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 Polygon, an ecological-level project that has evolved from a single-chain to a multi-chain matrix, this step is a bit sudden, but it is not too surprising. Especially when the Polygon zkEVM is launched on the main network, as the focus of Polygon's next development, it will be a problem that Polygon will have to face if it wants to promote the network to continue to evolve and introduce native tokens to the network.

At this time, there are several ways for Polygon to go, such as directly using MATIC, but this will avoid the problem of incompatibility between the "old model and the new stage" mentioned above; another example is to issue coins separately, but this It will cause the difference in the rights and interests of the various chains in the ecology, which will lead to more troublesome disputes; another example can be considered to continue to use ETH directly, but the economic burden will be too heavy (we can’t always sprinkle ETH to motivate), and secondly, It will also cause certain equity alignment problems.

All in all, for Polygon, the first path is obviously more controllable and more feasible. All it needs to do is to use the new vision of the new token to offset the worries caused by the additional issuance. At least according to the current market feedback (MATIC has risen a bit), the effect is not bad.