MATIC under the lens: why is Polygon busy but not making money?

Polygon (MATIC), a Layer 2 scaling solution for the Ethereum blockchain, is in an intriguing situation. Last data from Messari paints a picture of a network full of activity – the number of daily busy addresses is growing by almost 120%, the number of recent user registrations is skyrocketing by 70%, and the number of daily transactions is reaching a staggering 4 million. But beneath this energetic surface lies a troubling nub: a 19% drop in quarterly revenue compared to the previous quarter and a significant 40% year-over-year decline.

Polygon: web on fire

Polygon’s user base is clearly impressed. In the first quarter of 2024, there was a piercing enhance in the number of recent addresses appearing on the network at an unprecedented rate. This surge in users has resulted in a trading frenzy that has seen the number of daily interactions on the platform quadruple.

source: Messari

Polygon’s decentralized finance (DeFi) sector also thrived, with total value locked (TVL) across DeFi projects increasing by 30% compared to the previous quarter. A non-fungible token (NFT) ecosystem has been enabled. Polygon also got a shot in the arm, and sales volume increased by almost 20%.

MATIC price action over the last 24 hours. Source: CoinMarketCap

The revenue puzzle

So why this long face among the celebratory confetti? The answer lies in Polygon’s dwindling revenue stream. Despite exponential growth in activity, the chain’s coffers are suffering.

The $7 million earned in the first quarter of 2024 pales in comparison to the $10 million and $12 million taken in the previous quarter and the same period last year, respectively. This discrepancy between a booming business and dwindling revenues is the million-dollar question that has analysts scratching their heads.

MATIC market cap currently at $6.8 billion. Chart: TradingView.com

Fees fiasco or funding fluctuation?

There are two main suspects behind this income paradox. The first culprit may be Polygon’s transaction fee structure. Perhaps in an attempt to attract more users, the network lowered its fees to the point that, despite a huge enhance in transactions, overall revenue generation suffered.

Another possibility is a potential change in Polygon’s revenue streams. Perhaps there has been a decline in income from a particular source, such as grants or partnerships, which has not been adequately compensated for by growth in other areas.

What awaits us?

Polygon faces a critical moment. The network’s ability to attract users and support a energetic DeFi and NFT ecosystem is undeniable. However, if it does not solve the revenue problem, its long-term sustainability may be at risk. Going forward, Polygon’s transparency around its fee structure and revenue streams will be key to allaying investor concerns.

Additionally, exploring alternative revenue models, such as offering premium services or strategic partnerships, could be key to unlocking Polygon’s full financial potential.

Featured image from Zameen.com, chart from TradingView