Polygon, a layer-2 network that operates on top of the Ethereum blockchain, is set to implement an upgrade on Wednesday. This update involves replacing the existing MATIC token with a new one, named POL, which will offer enhanced flexibility in the issuance of new tokens.
Despite advance notice about the change, the switchover will be closely watched, given that the token is extensively included in the portfolios of cryptocurrency investors; it ranks as the 13th largest by market capitalization of major digital assets, valued at approximately $3.8 billion. For numerous holders, the transition to the new token will occur automatically.
This transition is part of the project’s scheduled overhaul announced under its “Polygon 2.0” strategy last year, aimed at establishing POL as the primary token of its mainnet, the Polygon PoS chain, and later, across additional networks in its ecosystem.
Polygon describes this initial stage of the token transition where “POL will replace MATIC as the principal gas and staking token for the Polygon PoS network.” Later stages will see POL playing a pivotal role in the AggLayer, a framework designed to unify various blockchains developed with Polygon technology.
Furthermore, the Polygon community has proposed that “POL will support broader roles in the Polygon staking hub (to be released in 2025), including block generation, zero-knowledge proof generation and participation in Data Availability Committees (DACs).”
The transition from POL to MATIC will incorporate some changes in tokenomics. According to Polygon, the token will feature a new annual emission rate of 2%, with a portion of the supply allocated to validators on Polygon PoS as rewards, and another portion directed to the community treasury, described as “a self-sustainable ecosystem fund that can support the aforementioned activities.”
“The primary reason for the upgrade, from a technical standpoint, was that the MATIC upgrade keys had been intentionally destroyed years earlier, making it impossible to alter the token,” explained Marc Boiron, CEO of Polygon Labs, in an interview with CoinDesk. “Therefore, one of our goals was to introduce emissions to utilize them for community and growth purposes, which was otherwise unachievable.”
Boiron emphasized that the introduction of emissions aims to enhance the Polygon community ecosystem by establishing a grants program within the community treasury, thus providing “some form of control by the community over the funds to facilitate ecosystem growth.”
“And then the second one is a means for, effectively, validators to receive emissions,” Boiron added. “Effectively, if you think of these new chains that pop up, what’s going to happen is that with time, they’re going to want to decentralize. And so instead of just having a centralized sequencer, they’re going to need to incentivize people to actually run a decentralized group or a decentralized prover. And if they don’t have a token, or if they don’t want to launch a token yet, how do they do that? Well, effectively, what this does is that a portion of that POL emissions can actually be used to decentralize their network, and then POL holders will then receive fees from that network.”
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