Matic Network ($MATIC) Fundamental Analysis

Overview

By now, the scalability trope is getting a bit repetitive in crypto. However, it’s justifiably mentioned because, as these are the early days of blockchain, the scaling problem is one that is uniformly faced by all decentralized networks.

Scaling refers to increased throughput (in terms of transactions per second) to meet the demands placed on blockchain networks by applications that are built on them. To put this into context, think of the Visa network. Millions of people worldwide use Visa’s payment network. On any given day, Visa transactions total around 150 million, breaking down to about 1,600 transactions per second.

For the Visa network to handle those transactions, it needs to scale up to the demand so that transactions happen in as close to real-time as possible. Now, compare that with the Ethereum network. Ethereum maxes out at around 15 to 20 transactions per second. If Ethereum suddenly dealt with Visa-like transaction totals under its current limitations, we’d quickly be faced with disaster. Transactions would not only become expensive, but network congestion would also reach peak levels that left us aging while transactions conrmed. Think CryptoKitties 2017 meltdown — now multiply that by a cartoonishly incomprehensible number, and that’s the type of disaster we’d be talking about.

So, how to bring Ethereum and other blockchains up to speed? When we’re talking about blockchain transaction scaling, we don’t mean to imply that scaling is only necessary for currency applications. Decentralized applications send massive volumes of smart contract transactions through the network and will only increase their transactional bloat as they aggregate users. Ethereum, as a host network, needs to scale up its TPS to give these decentralized apps the firepower they need to run services.

When considering the scaling issue and needs of decentralized applications hoping to run on the blockchain, one needs to also look at concrete gas costs. Gas is the fuel of the Ethereum network and is needed to power every single transaction. All gas fees are paid in ETH, and depending on the network’s capacity combined with the transactional demands of your DApp, those fees can become sky-high, making the financial feasibility of your project nil. Enabling high-scalability on a blockchain network means that the network has throughput for plenty of action and will, therefore, cost less to build on.

TLDR: Scaling is central to the mainstream use and adoption of blockchain technology/cryptocurrency because without it, the decentralized apps that will form the next generation of the internet (sometimes referred to as Web 3.0) can’t:

  1. Offer their services to a mass of users
  2. Afford to build and host their services on blockchain

Enter Matic Network. You’ve probably heard of Plasma, a scaling solution that was built with the OmiseGo Network in mind. Matic has throttled the development of Plasma and is the first known iteration of Plasma scaling technology. Put simply, it’s what is known as a layer 2 scaling technology which means that it doesn’t scale directly on the blockchain itself — it takes the transactional load off of blockchain mainchains (aka basechains) and runs it through what are known as sidechains. Let’s take a look at the concept with greater depth.

Plasma Layer 2 Scaling Solution

Matic Network wants to take fast, continuous, and high volume transactions away from the Ethereum mainchain and place them on off/sidechains where they can be processed much faster. While the transactions run free along sidechains, their finality occurs on the mainchain (translation: the fact that a transaction happened and is immutable post-network confirmation is recorded to the basechain).

The way a Matic/Plasma transaction works is basically like this: Let’s say you’re a regular at a bar. Every night or two, after work, you head into the bar and drink a beer to blow off some steam and mingle. Under the centralized paradigm, every time you buy a beer and pay with a card, you’re making a broadcast to VisaNet and there are payment processing fees. Under the current blockchain paradigm, every time you buy a beer you broadcast the transaction to the entire network which creates congestion and higher gas prices.

Under the Matic sidechain paradigm, you’ll top up a wallet that is maintained between you and the bar. Every time you pay, you do a micro-transaction that just goes between you and the bar on a sidechain. You might do 300 transactions before one day deciding to move to another town and close your ledger with the bar. At that point, the sidechain broadcasts all of the transactions in a single transaction, thus condensing what might have been additional network bloat into one TX.

Using Matic sidechains, the Ethereum network can support 10,000 TPS on a single sidechain. Multiplying sidechains isn’t, in theory, a roadblock, so Matic Network might be the scaling solution that enables the beginning of true high-throughput blockchains today. In the Matic team’s own words, sidechains “…are essentially EVM-enabled chains and are conducive to the ready deployment of solidity smart contracts, essentially making it an easy tool for Ethereum Developers to use it for scaling their DApps/Protocols.”

We’ve only discussed Matic Network in relation to Ethereum, but it’s important to note that Matic is not Ethereum-specific. They’ve chosen Ethereum as the first basechain to launch and showcase their solution and will be rolling it out for other basechains in the future. Because of the nature of decentralized applications and finance, Matic’s scaling solution is specifically geared toward creating a conducive environment for micro-transactions. One can also imagine that owing to its use in micro-transactions, Matic is also a great resource for IoT solutions as well.

Simple UX for Developers

With a scaling solution in the bag, Matic’s team concluded that a total ecosystem approach would also require an easy user interface experience to improve the productivity of developers building on blockchain. That, in turn, should also bring about greater adoption since those same developers are the ones building services for enterprise users.

Tendermint-Based Proof of Stake & Digital Asset Security

Matic Network sidechain operators double as stakers to ensure that they have skin in the game. Because sidechain operators are staking MATIC, it’s in their best financial interest that the network remains honest.

More importantly, it’s fair to wonder how digital assets secured on the Matic Network. If we’re trading around high-value assets like ETH and BTC on a Matic sidechain and a network failure occurs, what happens to the assets? Plasma’s basic premise is built around asset security. In effect, if something happens to the sidechain, then the basechain is referred back to and is used as the arbiter. As long as the basechain (Bitcoin, Ethereum, EOS, Cardano) isn’t corrupt, then your assets are safe and sound.

Use Cases

Payments. Matic’s over-arching use case is found in any situation involving transactions on a micro/high-frequency level. In the cryptocurrency world, making payments is far from sorted out and, if we see an uptick in usage soon, it’ll also be far from handling the traffic. That’s why the Matic team is focusing on making the network primed for handling payments beginning with Ethereum-based assets before branching into atomic swaps/cross-chain payments and transfers. Down the road, Matic wants to integrate fiat liquidity pools into the network so that fiat users can take advantage of all of the benefits of blockchain enjoyed by the crypto world.

Gaming. With its ultra-high throughput, Matic also envisions a day on the horizon when game developers will build decentralized games on their sidechains. In the near term, Matic’s at least expecting in-game asset transactions to account for huge volume on the network.

IoT. Anytime the conversation is about micro-payments, the elephant in the room is IoT. Obviously, with the ability to handle a seemingly unlimited number of transactions, Matic Network is a prime candidate for handling IoT applications. There are currently 7 billion IoT devices, but that number is projected to parabolically rise to 75 billion by the year 2025. While Matic Foundation itself won’t be developing specific solutions for specific IoT apps, third-party apps that are can do so using Matic’s toolbox and network.

DEX. A big part of the future as seen by Matic is the freeing up of global value via decentralized exchanges operating behind wallets of every kind. Suppose that you want to send ETH and your friend wants to receive JPY — Matic can handle that conversion instantly and in the background so that your friend doesn’t need to have any knowledge of crypto whatsoever.

Wallet. Tying the Matic Network’s suite of features and possibilities together is their Plasma Wallet. Anything you can do or would want to do over the Matic network is accessible through the wallet, making it a simple portal to a powerful array of tools.

Roadmap, Backers, and Partners

However, the Matic team is already quite far along on its roadmap. In August of last year, testnet payments had already been successfully committed. ERC721 token support for in-game assets, API and SDK kits, PoS implementation, a block explorer, an alpha mainnet, and WBTC support have all been crossed off the checklist. Still to come is a beta mainnet in July before the real thing in September — but considering the way the team has handily met its milestones thus far, the odds of the team delivering are high.

We’re not the only ones who are convinced about Matic’s potential to deliver. Coinbase Ventures invested in Matic Network during a seed funding round, making Matic just one of a few elite projects being backed by Coinbase’s nascent investment arm. Additionally, Matic has been endorsed on more than one occasion by CZ, Binance’s beloved CEO.

Since its IEO, Matic has partnered with several well-known crypto properties. Decentraland, Celer, Quarkchain, Ankr Network, Ripio, Zebi, and MakerDao are amongst the first of a (probable) many partners to climb aboard.

Team

Does that disqualify the team? Both Jaynti Kunani and Sandeep Nailwal, two of Matic’s three co-founders, have blockchain experience and even contributed to projects at Web3 and Plasma. The rest of the team, despite having a few ex-Google devs on hand, seems a bit thin. That might lend to a greater scrappiness and, considering that Coinbase Ventures heavily vetted the project before backing it, they must feel confident that the team is capable of achieving its targets.

SWOT Analysis

Matic has a few apparent advantages going for it. First and foremost, it’s hitting the market well before any other comparable scaling solutions. Sharding is years away, Lightning Network is still mired in testing, and Plasma went from being OmiseGo’s scaling solutions to a digital asset framework being used by the community. Sure, one can argue that Loom Network is a competitor — but their focus is almost strictly on games, they’re Ethereum only, and they’ve unfortunately dubbed themselves “EOS on Ethereum.” There just isn’t a clear/direct competitor to Matic Network at this time, and that plays into the potential of the project overall.

Secondly, Matic has solid backing and a roadmap full of met milestones. That bodes very well for the project and takes it lightyears ahead of other whitepaper projects out there.

Finally, gaming is going to be huge for blockchain, and Matic knows this. That’s why Decentraland’s founders are on the team as advisors and why Matic has placed focus on ERC721 token support. Sure, payments are important, but cross-border payment solutions like Ripple and Stellar have significantly more infrastructure in that regard (though their main focus isn’t on digital assets as is Matic’s). Owing to that, it’s a smart play by Matic to go after the gaming industry as they’ll be the most likely to adopt blockchain after finance.

With so many active use cases, staking MATIC will be an appealing value proposition to plenty of investors.

Weakness:

The Matic team’s freshman look is a bit concerning, but again, Coinbase didn’t invest in them blindly. The main concern for Matic is longevity. Once onchain scaling hits networks like Ethereum, how do they continue to justify offchain solutions like theirs? Matic may just be a temporary fix for a problem that is eventually going to have much more elegant solutions that make their third-party bandaid nonessential.

Opportunity:

Matic is picking up partners faster than you can blink. The prospect of having a highly scalable network with incredible Plasma-backed digital asset security and staking is not one to pass up without consideration. Using Matic, third-party apps can make the most of Ethereum and other blockchain networks now, even though they have slow throughput mainchains. That’s an innovation worth taking a long look at — especially if Matic continues accruing endorsements and partners.

Threat:

As previously mentioned, the threat to Matic is an existential one. This may only be a temporary solution that will be fixed by the big blockchains like Ethereum, NEO, ADA, and EOS quite soon. If sharding brings the kind of transactional throughput that’s expected of it, there won’t be much cause for layer 2 scaling solutions anymore (unless the whole of IoT’s billions of devices migrates to blockchains).

Token Metrics

Circulating Supply: 2,160,114,068

MATIC Token Supply: 10,000,000,000

MATIC Price: $0.025698

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