Polygon (MATIC) had a promising July, gaining an impressive 83% in 30 days. The smart contract platform uses Layer 2 scaling and aims to become an essential Web3 infrastructure solution. However, investors wonder if the recovery is sustainable, given lackluster filings and active address data.
According to Cointelegraph, Polygon rallied after being selected for the Walt Disney Company acceleration program to create augmented reality, non-fungible token (NFT) and artificial intelligence solutions.
Polygon announced July 20 plans to implement an Ethereum zero-knowledge virtual machine (zkEVM), which combines multiple transactions before relaying them to Ethereum (ETH) blockchain. In a recent interview with Cointelegraph, Polygon co-founder Mihailo Bjelic said that this solution will reduce Ethereum fees by 90% and increase throughput to 40-50 transactions per second.
Another reason for Polygon’s rally was the growing number of platforms that started offering liquid staking for MATIC tokens, which allowed holders to earn additional rewards. Examples include Lido Finance, Balancer, Meshswap, and Ankr Staking, according to DeFi Pulse.
Although currently 69% below its all-time high, Polygon remains one of the top 12 tokens by capitalization ranking. Additionally, the network holds $1.72 billion in deposits locked to smart contracts, known in the industry as Total Value Locked, or TVL.
Polygon’s Ethereum-compatible scaling is fully functional, hosting decentralized applications (DApps) which vary from decentralized exchanges (DEX), secured lending services, yield aggregators, NFT markets and games.
Polygon smart contract deposits fell 42%
Despite Polygon’s 83% rally in 30 days, the network’s TVL measured in MATIC tokens fell 42% over the same period. For comparison, Fantom (MTF) descaling solution decreased by 14% in 30 days and Klaytn (KLAY) increased by 11%.
In dollars, Polygon’s current TVL of $1.42 billion is 67% lower year-to-date. Yet such a number is not far from that of Solana (FLOOR) $2.08 billion, or Avalanche (AVAX) $2.52 billion, according to DeFi Llama data.
To confirm whether Polygon’s TVL decline is caused by declining adoption, it is worth analyzing DApp’s usage metrics. However, some DApps, such as games and NFT marketplaces, do not require large deposits, so the TVL metric is not relevant in these cases.
As DappRadar shows, on August 1, on average, the number of Polygon network addresses interacting with decentralized applications decreased by 19% compared to the previous month.
Given that Polygon’s TVL has declined by 42%, the network lacks more substantial user base growth to support continued MATIC token price momentum. Yet Quickswap, the leading DApp, featured 138,530 active addresses over the past 30 days. For comparison, the main Ethereum application, OpenSea, had 299,910 users during the same period.
The data above suggests that Polygon has lost some of its traction in the scaling solutions market. However, the project’s recently announced zero knowledge has yet to be implemented, but its benefits could drive MATIC above $1.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.