Which one to buy?
You were about to wrap your head around the OG Bitcoin and then you came across Ethereum- the world’s supercomputer. While fiddling with this fantastic technology, you realized it is slow and expensive. Your dreams of witnessing the changing world order from the likes of Visa to Ethereum were almost shattered. But then, something drew your attention.
There it was. Shining as ever. Touted as a layer 2 scaling solution aimed to bring the world to Ethereum- Matic. Why layer 2? Because it derives its value from the success of Ethereum- layer 1 in this context. The sole purpose of Matic (Now known as Polygon) is to cover the shortfalls of Ethereum. But then a prudent question to ask is can a layer 1 solution do this? Enter: Solana. A layer 1 Blockchain that takes Ethereum, head-on. It boasts of a transaction speed of 65,000 Tx/s and processes them at a fraction of a cent.
But then, which of these tokens is a great buy? Well, that is exactly what we are going to talk about today. Understanding the fundamental nuances of these tokens along with some alpha to take home.
Matic is the native token of the Polygon network. Unlike popular belief, Polygon is not just a Blockchain. Rather, it is a set of different scaling solutions like plasma sidechain, zk rollups and MATIC bridge. The fundamental concept remains the same. Through each of these technologies, polygon tries to offload transactions from Ethereum and hence speeds things up whilst making them cheaper in the process.
On the competitive front, Polygon enjoys a first-mover advantage. However, of late, it is facing stiff competition from the likes of Arbitrum and Harmony. The entire tussle is to come up with the best EVM-compatible scaling solution. Say what? You see, scaling transactions is obviously the need of the hour. But, the real juice of any Blockchain lies in smart contracts. These are self-executing immutable pieces of code that have the potential of transforming any manual process.
EVM or Ethereum Virtual Machine is the world’s first smart contract executor. While Polygon already has an EVM compatible scaling solution, the race to improve it further is still on.
With that being said, Polygon has garnered a lot of investor interest in the past couple of years. Valued to the north of $10B, Polygon has raised a total of $500M so far.
We shall discuss specifically the investable aspect of Polygon i.e. its native token Matic in a short while.
Solana has been a darling crypto for the entire gamut of investors. As soon as Ethereum’s scalability issues surfaced, a whole new class of Blockchains termed as ‘Ethereum Killer’ rose in the market. Amongst these so-called killers, Solana took the top spot as its price jumped from $1.5 to $250 within a short span of six months.
The whole innovation lies in a novel way to reach a consensus. For the uninitiated, a consensus mechanism is a method by which all the nodes (or computers connected to a blockchain) agree on the legitimacy of a transaction. Bitcoin does this through proof-of-work (PoW) which is energy-intensive, Ethereum is moving to proof-of-stake (PoS) which is relatively slower. Solana intends to do this by Proof-of-History (PoH). In fact, the team behind Solana claims that this little maneuver has turbocharged their TPS to an extent that they are at par with the likes of Visa.
So far so good eh? Well, that is where it unfortunately ends. Solana has been taking a constant beating in terms of the token price because of its constant downtimes. So far, there have been about 6 instances in the past six months where the Solana network has to shut down for some reason. Is that the end of the story for its native token $SOL? Read on!
Now that we have understood the basics of these tokens/projects, it is sensible to compare these two projects based on key Blockchain parameters.
The ethos of web3-based internet revolves around the dissemination of power from the hands of a select few individuals to the masses. For a proof of stake/proof of history blockchain, this decentralization has multiple facets.
For example, one needs to evaluate the number of nodes which are validating the transactions. More the number, the higher the degree of decentralization. Why? Because the lesser number of nodes means it takes less effort to convince 51% of them to overtake the network.
Solana has 20 nodes as of now and Polygon stands at 100. The infrastructure required to set up a node for Solana is extremely complex. This makes it really difficult for an average joe to become a validator and hence strays Solana away from the whole democratization narrative.
Polygon on the other hand is comparatively aligned to this cause and hence more number of participants.
Think of a Blockchain as a cafe that has WiFi enabled for all its users (decentralized applications building on top of it). What good is this cafe if there are no users at all?
Developer activity is a critical metric to gauge the future of a project. If more people use it, the value shall accrue and compound over a period.
Polygon is a clear winner in this aspect. They have brought some of the world’s most famous companies including Meta to the web3 bandwagon.
Another important point here is that Polygon uses Solidity as its core language and Solana uses Rust. Rust is considered slightly off-beat and difficult as compared to Solidity. This is why there is an additional learning curve if someone wants to build on the likes of Solana.
Tokenomics captures the economics of a token. Its supply, distribution, rate of production/burning etc. Solana and Polygon have pretty similar tokenomics.
Solana’s rate of inflation (i.e. the number of new $SOL entering the ecosystem) stands at 8% whereas for Polygon it is at 10%.
This makes $SOL a more attractive investment as it holds its purchasing power when staked.
Another key aspect to notice here is the distribution. 48% of $SOL is held by insiders, including the founding team, developers and VCs. This poses a dump risk for retail investors.
When it comes to decentralized finance, Polygon and Solana are at par. The total value locked inside Polygon protocols is $1.75B and $1.45B for Solana.
With all the key DeFi protocols like AAVE and Uniswap enabling Polygon, this difference will widen up further.
First of all, the entire crypto space is so nascent that it is detrimental to an investor’s cause to take sides. The top 10 cryptocurrencies by market cap change every cycle.
However, as of today, Polygon is all gung ho on the hottest tech in this space. Apart from that, they are also focusing big time on enterprises to enable web3 for web2 companies. Solana on the other hand is also rolling out newer innovations periodically. They recently announced the launch of the first web3 focussed smartphone.
Which out of these giants would make it? Only time would tell. For now, it is prudent to allocate your funds to both of them to hedge the risks associated with being a maximalist.
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