Polygon (MATIC) price has been under intense pressure in the past few months as concerns about its future remain. The coin is trading at $1.3720, which is about 53% below the highest level this year. Its market cap has dropped to about $9.47 billion.
Future of Polygon
Polygon is a layer 2 network whose goal is to help scale applications built using Ethereum’s network. The goal of this sidechain is to ensure that applications built in Ethereum are significantly faster and more cost-effective.
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The need for this platform is the fact that Ethereum is known for its inefficiency. As a second-generation platform, its transaction speed is often slow and costly. Therefore, by using a sidechain like Polygon, developers are able to optimize their apps and create a friendlier ecosystem.
Ethereum’s developers are now hard at work trying to solve these challenges as it transitions from a proof-of-work to a proof-of-stake network. The final platform will also have a sharding mechanism that will make it significantly faster.
Sharding is a method that divides blocks into smaller pieces known as shards. This process, therefore, helps to boost the network’s throughput. As a result, Ethereum will be able to handle thousands of transitions per second.
Therefore, the Polygon price has dropped as investors worry whether layer 2 networks will be needed after this transition completes later this year.
Polygon activity slowing
Another reason is that activity in Polygon has declined in the past few months. According to DeFi Llama, Polygon has 234 DeFi projects, which is a substantially high figure. However, the total value locked in it has dropped to about $4 billion. The TVL has dropped from an all-time high of more than $8 billion. In contrast, the recently launched Cronos has a TVL of $4 billion.
Most importantly, many Ethereum projects that have moved to Polygon have seen low activity. For example, AAVE has a TVL of about $930 million in Polygon. This is a substantially low amount considering that AAVE has a TVL of over $13 billion. The same situation is seen in other projects like Curve, Balancer, and SushiSwap.
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Source: https://invezz.com/news/2022/04/14/2-reasons-why-polygon-matic-price-is-getting-vulnerable/