Why Are Brands Choosing Polygon: Separating Fact From Hype on the Hottest Blockchain
How does Polygon stack up against Ethereum in categories like sustainability, transaction cost, speed and growth strategy? Are brands choosing it for the right reasons?
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With y00ts migrating to Polygon, the debut of NFT collections by Nike and Reddit, and the utilization of Polygon's infrastructure by Starbucks, Disney and JP Morgan, it appears that Polygon has become the de facto enterprise blockchain. Heck, even Mastercard is helping artists create music NFTs on Polygon.
Yet, people know relatively little about Polygon other than that it’s sustainable and cheap. This post will shed some light on the Polygon blockchain. Its advantages, disadvantages, NFT scene, growth strategy as well as reasons to use it and not to use it.
After all, before we all jump on the Polygon bandwagon, it’s important to understand the blockchain first.
Note: This might get a bit technical at times, but if you understand it your understanding of Polygon will be >99% of the NFT crowd.
Is It Really the Green Blockchain?
Polygon’s strongest marketing narrative has been sustainability. It’s not hard to understand why they chose that angle as their emissions were only ~0.48% of Ethereum’s pre-Merge.
However, post-Merge Ethereum consumes significantly less CO2 than before. 99.992% less to be precise. Ethereum is now expected to emit around 857 tons (or 870 tonnes) of CO2 per year. Because Polygon is a Layer2 sidechain on Ethereum, Ethereum’s improved sustainability had positive ripple effects on Polygon. Polygon went from 60,953 tons of C02 emissions per year to 56.22 tons. The graph below visualizes the current state of both blockchains. (Note: Data with Naked Collector as the only source is from my SQL queries on blockchain data.)
Looking at the real-time CCRI’s data, these estimates have been pretty accurate so far.
However, before we deem Polygon as the “green choice”, we have to keep in mind the blockchain usage (higher activity often leads to higher energy use i.e. higher CO2 emissions). Below I compare some of the key usage metrics for both Ethereum and Polygon.
Ethereum is the clear leader in all categories. Most strikingly, its 30d NFT sales volume is 90x higher than Polygon’s. To put into context, Ethereum’s NFT sales volume in the past 30 days is as large as Polygon’s all-time volume.
The numbers are summarized in the graph below. The main takeaway is that while Polygon is still the greener blockchain, it also has significantly less usage.
While blockchain activity doesn’t linearly correlate to CO2 emissions, the current sustainability comparison between Ethereum and Polygon doesn’t seem entirely fair due to Ethereum’s drastically higher utilization. After all, Polygon gas fees have also spiked to high levels during peak activity, which has led to the decision to hard-fork the Polygon blockchain.
Regardless, as we see in the graph below, Ethereum now consumes less energy than Paypal and emits only ~0.0016% as much CO2 per year as the Bitcoin proof of work blockchain. As a consequence, Polygon’s sustainable blockchain narrative isn’t nearly as strong as it was before the Ethereum Merge in September 2022.
However, this hasn’t stopped Polygon from doubling down on its Green Manifesto by committing to carbon offsets and building on-chain carbon markets.
Fast Transactions and Low Gas Fees
Fast Transactions
In addition to sustainability, Polygon excels in transaction speed. In theory, Ethereum can handle around 13-15 Ethereum transactions per second (TPS), while Polygon 65,000 can handle transactions per second. However, looking at the on-chain data Polygon hasn’t exceeded 138 TPS ever, while Ethereum has averaged around 14 TPS.
Overall, this means it takes Ethereum roughly 10 seconds to handle a transaction whereas it takes Polygon only 2.3 seconds. However, we have to keep in mind that as Ethereum scales, sharding should increase Ethereum’s theoretical TPS to 100,000.
Cost
Polygon is not only faster but also the cheaper blockchain to transact on.
Ethereum
Cost per NFT trade: $13.4 (December 2022 average)
Cost per NFT mint: $0.08 (December 2022 average)
Polygon
Cost per NFT trade: between ~$0.08
Cost per NFT mint: Gasless minting
Regarding transaction speed and cost, Polygon is the clear winner. However, there are at least two things to consider here:
The average transaction value (for all transactions, not just NFTs) on Polygon is lower. Thus, it makes sense that the gas cost is lower. In fact, 21x more value is transacted per user on Ethereum (see graphs below).
While NFT prices by themselves don’t automatically affect gas prices, higher NFT prices on a blockchain usually mean higher adoption (see previous section) and higher confidence in the blockchain security i.e. a willingness to hold high-value assets on that blockchain.
Hence, a higher gas cost could be thought of as the premium for higher security and volume.
Ethereum’s average daily value transacted per user (all assets) = ~2.9 ETH (~$4700 at current prices) via ~2.9 transactions
Daily unique users ~300K = daily value transacted ~$1.4B
Source: The Naked Collector Polygon’s average daily value transacted per user (all assets) = ~96 MATIC (~$96 at current prices) via ~8 transactions. This is 2% of Ethereum’s daily value per user, i.e. 48x more value is transacted per user per day on Ethereum.
Daily unique users ~325K (depends on categorization) = daily value transacted ~$31M
Source: The Naked Collector
As with sustainability, Ethereum is working toward improving its native scalability via sharding, which should increase transaction throughput, thus reducing gas fees. On the other hand, Polygon is also seeking to lower transaction costs and increase speed via their Polygon zkEVM rollups. Something developed via their acquisition of Mir Protocol and Hermez Network.
This conveniently leads us to the next reason why projects choose Polygon: Incentives.
Polygon’s Onboarding Incentives
Sources of Funds
As seen in the chart below, Polygon has a large ecosystem and foundation fund paired with a $450M investment round in 2022 led by Sequoia India. This funding is undoubtedly one of the reasons behind Polygon’s ability to attract great partnerships in 2022.
Note that Polygon may have additional ecosystem and foundation funds outside the official Ecosystem Smart Contract and Foundation Contract marked on Etherscan.
Use of Funds
Below we see Polygon’s acquisitions, ecosystem/foundation funds and grants. The largest expenses have been acquisitions (both Mir and Hermez are scalability solutions).
Polygon has two large ecosystem funds, the $100M Supernets Ecosystem Fund and the “uncapped” Terra Developer Fund. Polygon also has partnership funds with Seven Seven Six (Reddit co-founder Alexis Ohanian’s fund) and Wintermute. The composition of the funds are unclear, i.e. whether Polygon contributes 50% of the fund capital or not. Finally, Polygon has also given out grants to promising Web3 projects. Most notably Polygon gave the y00ts NFT project a $3M grant to switch to Polygon.
These are Polygon’s main uses of funds, however, there are still some smaller ecosystem funds and funds of ambiguous size that aren’t mentioned here.
Polygon has also had its fair share of investments in other projects. Since these are investment rounds, we don’t know exactly how much Polygon has invested in each company.
While these numbers may not be exact and contain several assumptions (e.g. regarding Polygon’s investments), the takeaway is that Polygon’s approach to ecosystem building is much less organic than Ethereum’s. While this enables fast growth, it also poses some risks and may even mask Polygon’s true adoption. Based on Electric Capital’s developer data (see table below), Polygon neither has the fastest growing developer population among the leading blockchains, nor is it in the top 5 by full-time developer quantity.
Moreover, because Polygon has raised VC funding via token offerings and ecosystem growth is funded at least in part with Polygon’s MATIC token, Polygon’s investment results affect MATIC token holders. In contrast, Ethereum token holders don’t have similar concerns. The Ethereum Foundation hasn’t raised money since 2017 and participated only in a handful of investment rounds (it’s more focused on giving grants). This causes it to be a slower, but more stable ecosystem in the long run.
Polygon NFT Market Overview
Polygon’s NFT ecosystem hasn’t taken off in a major way yet. Its all-time sales volume (~$598M) is less than Ethereum’s 30-day volume (~$699M). Moreover, in the past 30 days, Polygon’s NFT trading volume reached just 0.9% of Ethereum’s.
The chart below, on the all-time volume distribution of NFT projects, summarizes the ecosystem pretty well. Polygon’s all-time leading project is the horse racing game Zed Run which hasn’t been relevant since around mid-2021. On the other hand, the NFT project Collector Trump Cards which launched a month ago has already taken the number five spot on the all-time list. The ecosystem is in desperate need of new innovative projects. Thus, the decision to give y00ts a $3M grant to migrate over to their blockchain isn’t a surprising one.
When it comes to Fashion NFTs, the most notable Fashion collections on Polygon are:
Reddit NFTs (PFP)
Genesis Curry Flow (wearables)
Adidas For Prada Re-Source (collectibles)
The Polygon Fashion NFT volume is minuscule compared to Fashion NFTs on the Ethereum blockchain. For context, RTFKT Clone X did more than $12M in volume over the past 30 days. Several other RTFKT assets have exceeded $10M per month in the past year.
Reddit NFTs have not only outperformed their Web2 competition but are also held by more than 6 million holders.
Web2 Brand Performance
As we saw in the previous graph, the top Fashion NFTs were not surprisingly all by Web2 brands: Reddit, Under Armour (Genesis Curry Flow) and Adidas.
Reddit NFTs are not only the Polygon leaders in terms of trading volume, but are also held by more than 6 million holders.
There are also new Web2 entrants gaining pace in NFTs. Nike’s dotSwoosh mint has gone well having already over 270K users mint their membership NFT. Trading of the dotSwoosh NFTs hasn’t been enabled (at least for now) as they are meant to represent Nike Web3 IDs. It remains to be seen if these will be regular Nike IDs with Web3 backend or something more. The journey kicks off on January 25th.
Reasons Why You Should and Shouldn’t Use Polygon
Here are some reasons why you would and wouldn’t want to use the Polygon blockchain.
Why You Should Use Polygon
If high transaction speed and low transaction cost are important
If you’re building a project that requires users to interact frequently with their NFTs (e.g. transfer, exchange, purchase, mint), such as a P2E game, then Polygon may be a good choice. The transaction speed and cost are something that won’t be overtaken by Ethereum anytime soon (although there are promising Layer2 solutions like Arbitrum, Optimism and ImmutableX that compete with Polygon in transaction speed and throughput).
If you’re onboarding primarily Web2 users
The Polygon ecosystem has done a good job of obfuscating the complex Web3 interface e.g. Web3 wallets via protocols like Paper that resembles a typical Web2 e-commerce shopping experience. Moreover, the mint costs are significantly lower than on Ethereum, which should make most NFTs cheaper initially, thus derisking the decision to mint for new Web3 participants.
Why You Shouldn’t Use Polygon
If you’re doing it just for sustainability reasons
While Polygon is still a more sustainable choice than Ethereum, in the long run, as Ethereum scales, this difference should become less significant.
If you’re planning to mint luxury/high-value NFTs (and onboarding not just Web2 users)
The Ethereum blockchain is still the golden standard when it comes to transparency and security. For one thing, the low transaction cost on Polygon has caused it to be rife with fraudulent NFTs, which have compromised users in the past. The high-value collectors are all on Ethereum and there just isn’t enough volume on Polygon NFTs. At least not yet…
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