Deciphering Polygon's Latest Strategy: zkEVM, Validium, and Beyond

In this article, you can find information about Polygon, including Arbitrum, Optimism, Manta, Immutable X, zkSync, Scroll, and Linea.

Polygon has been experimenting with all technologies since 2017 (plasma, sidechain, ZK rollup, validium) to find the best one.

The Polygon team acquired Hermez & Mir companies (along with their employees) working on ZK for a total of $650M when they realized ZK technology would change the blockchain world in 2021.

After measuring and evaluating, the Polygon team decided to be an L2 validium rather than an L1 sidechain. The transition will take place this year. Its name will change to Polygon zkEVM Validium instead of Polygon PoS.

Why are they opting for validium instead of rollup?

Polygon already has a rollup chain called Polygon zkEVM. Thus, there will actually be two L2s:

• Polygon zkEVM (rollup)
• Polygon zkEVM Validium (former Polygon PoS)

Brief technical information:
Optimistic rollups (Arbitrum, Optimism, etc.) use fraud proof for transaction verification. They send data to Ethereum and if no one objects for a week, it means the transactions are correct.
ZK rollups (Polygon zkEVM, zkSync, Linea, Scroll, etc.) use validity/ZK proof for transaction verification. They send data along with mathematical proofs of transactions to Ethereum. These transactions are complex and expensive but provide quick certainty.

Validiums (Polygon zkEVM Validium, Immutable X, etc.) use validity/ZK proof for transaction verification. They keep data off-chain (do not send it to Ethereum) and only send mathematical proofs. This makes it cheaper but sacrifices some data security.

Vitalik says: Choose rollup for DeFi applications where large sums of money are involved because you need a lot of data availability. But choose validium for games & social media, etc., where you keep the data off-chain yourself.

Polygon says: Let's be both rollup and validium. It would be great if they use the same validators and the same liquidity pool for both. Even blockchain using Polygon CDK should be the same way.

I'll talk about Polygon CDK details shortly.

Why did Polygon make this decision?

Polygon achieved great success in the previous bull market and ranked in the top 10 with a market cap of $20 billion. It signed deals with many large companies like Starbucks, Nike, Reddit, etc.

However, things have changed in the L1 world in the last 2-3 years. Many projects have decided to become L2 and delegate these tasks to Ethereum because Ethereum dominates in terms of security and decentralization (settlement & consensus & data availability). This gave them an advantage.

For example, Arbitrum & Optimism quickly expanded their ecosystems by focusing only on the user-facing side (execution & UX) and buying other services from Ethereum. Transaction fees are relatively low and will decrease further with EIP-4844.

Other L1 blockchains like Solana, Avalanche, Aptos, etc., provide cheap & fast transactions by compromising decentralization with relatively limited validators and try to expand their own ecosystems (DeFi, GameFi, DePIN, AI, subnet, etc.).

What's Polygon's roadmap?

They're becoming L2, alright. They'll use ZK proof for transactions and send them to Ethereum, yes. So, what's next?

Roadmap:

1. Polygon zkEVM and Polygon zkEVM Validium should use the same liquidity pool (via the Interop Layer in the image).
2. Develop a bunch of L2s with Polygon CDK (chain development kit) (C1, C2, C3... in the image). Some should be for DeFi, some for GameFi. Some should be rollup, some validium. Their common feature should be using ZK proof.

Examples: Manta Pacific, Immutable X, ZKFair, ApeX, Canto, Astar zkEVM, X1 (OKX chain), etc. The goal is to have more than +100 of them.

1. All blockchains developed with Polygon CDK should use the same liquidity pool. There shouldn't be fragmentation (liquidity shortage) like other L2 projects. Users shouldn't sell $1000 ETH and buy $980-990 USDC.
2. There should be a staking layer for ZK transaction proofs. Thus, validators staking $POL should ensure the security of ZK proofs. These proofs should also be sent to Ethereum.
3. The staking layer should also be used for data availability & shared sequencing. Data availability is necessary for rollups. Shared sequencing decentralizes the process of sequencing and confirming transactions.
4. MATIC -> POL conversion is necessary.

MATIC token is distributed only as a reward for PoS validators. However, validators will now work for the entire Polygon ecosystem, and it's not possible to provide rewards with MATIC alone; the code needs to be updated.

There's a need for a new token for validator rewards + marketing. Let it be $POL, with an inflation rate of 2% for 10 years.

Half of this (%1) should be distributed as rewards to validators, and the other half should be kept in the marketing team. After 10 years, the inflation rate should be 0. By then, transaction fees will be enough for both validators and the marketing team.

Marketing is necessary to compete with other L2 projects. Therefore, using a token (POL) for this purpose is essential.

What should those holding MATIC do?

The MATIC -> POL conversion will be 1:1. So, you'll get as many POL as you have MATIC.
If you hold it on a centralized exchange, the exchange will handle the conversion for you. If you hold it in a Web 3 wallet, you'll do the conversion with a transaction when the time comes. The team will announce it.

Maybe something different needs to be done for staked MATIC tokens. I'm not sure about this; we need to follow the team announcements.

What's the state of competition in zkEVM?

Vitalik divides ZK rollups into 4.5 types/classes. Looking at the table, Polygon zkEVM, Linea, and Scroll appear as Type 3 (note: the image is a bit old; Scroll is on mainnet now).

These projects aim to be Type 2. In Type 2, both EVM compatibility (necessary for ecosystem expansion) and fast & cheap transactions are ensured (necessary to attract users).
Scroll infrastructure is quite compatible with EVM. It can quickly attract many projects from the Ethereum ecosystem.

zkSync is a bit behind in EVM compatibility. However, they are in a good position in ZK technology. zkPorter will serve as a sort of validium. Their ecosystem will include chains like GRVT, ZKSpace, zkCandy, etc.

The article has become quite long, so I'll stop here. I'll write another article specifically for comparing zkEVM projects. Starknet is in a separate category, but I'll mention it in that article.

Should we buy or sell MATIC/POL?

Of course, I can't tell anyone what to do. I'll just share my plan:
I hold 3% of my portfolio in MATIC. Also, IMX occupies 1% of my portfolio.

I trust in the future of ZK technology and the Polygon team. However, developments might postpone price actions until the second half of 2024 and 2025.

By that time, optimistic rollups will likely dominate, so I have/will have $ARB and $OP in my portfolio. The ecosystems of these two projects are already extensive.

In short, I believe strong L2 projects will do well in this bull market. I'm also continuing to participate in airdrops for L2 projects that don't yet have tokens.