This article was written on July 14th and has been recently edited to fit the Snapshot template.

Key Takeaways

• Recently, there has been a growing movement to improve scalability both vertically and horizontally.

• Polygon 2.0 is a network of ZK-powered L2 chains that aim to become the value layer of the internet, intending to achieve both scalability and interoperability through ZK technology.

• A new tokenomics for $POL has been proposed in line with the new blueprint, and it is expected to play a significant role until the Polygon 2.0 ecosystem matures.

1. What Happened?

Source: Polygon

Recently, Polygon released the blueprint for Polygon 2.0, which builds on the above approach with a vision of “The Value Layer of the Internet”. Just as anyone can create and exchange information on the Internet, the value layer is a protocol that allows anyone to create, exchange, and program value.

Polygon 2.0’s values are “Unlimited Scalability” and “Unified Liquidity”, which it aims to achieve through a network of ZK-powered L2 chains. On the user side, despite using multiple ZK L2 chains, the UX will feel like using a single chain.

2. Backgrounds

2.1 Road to Mass Adoption

While the price performance of the cryptocurrency market is still well below the highs of the last bull market, there is more diversity in the blockchain space than ever before. In particular, since the last bull run was largely a result of a favorable macro environment and the lack of meaningful real-world use cases for blockchain, numerous protocols can be seen setting their direction focused on mass adoption in the current market.

For mass adoption, improving not just one but many areas is essential. Firstly, it’s significant to enhance the UI/UX of services like wallets, which are typically the initial point of contact for users with blockchain. Secondly, there needs to be greater availability of practical blockchain services for users. Lastly, a well-developed infrastructure is required to facilitate effortless blockchain usage for many users.

2.2 Different Types of Blockchain Networks Toward Mass Adption

This article will examine the concept of mass adoption through the lens of infrastructure, but what should a network designed for mass adoption actually look like? Up to this point, diverse blockchain networks have proposed unique approaches and strategies.

The first is to optimize on a single chain. This is the approach taken by Solana, Sei, Aptos, Sui, and others (see: “Sei, General Purpose L1 for Trading”). The advantage of a single chain is that the various dApps in the chain can interact with each other with seamless composability. However, the disadvantage is that the performance of the network is limited to the lowest-performing nodes, and the network can become centralized as nodes require higher specification hardware for high scalability.

The second is building an ecosystem with multiple L1 networks and appropriate cross-chain protocols. Cosmos, Polkadot, and Avalanche are some examples of this approach. The advantage of this approach is that scalability can theoretically be infinitely increased through parallel scaling, but the disadvantage is that despite the existence of cross-chain protocols, the asynchronous nature of the different networks reduces composability and fragments the ecosystem and security.

The third approach is to improve scalability vertically, such as a roll-up network based on a single base layer. Examples of this approach include Optimism, Arbitrum One, and Starknet. The advantages of this approach are that it allows for high scalability while still benefiting from the security of the base layer by performing computations off-chain, and it allows various apps to interact with high composability within one network. However, the downside is that the L1 somewhat limits the scalability of the L2, and as Vitalik Buterin points out, there are limits to improving scalability vertically using the same vertical scaling structure.

All of the above methods are significant in that they have provided a direction for mass adoption, but they have clear advantages and disadvantages. Hence, in recent years, an approach has emerged combining the aforementioned methods, harnessing both strengths, as illustrated in the diagram below.

In addition to Polygon Chains, which we’ll discuss in this article, all of the leading rollup networks — Optimsim’s OP Stack, Arbitrum’s Orbit, zkSync’s ZK Stack, and Starknet’s Fractal Scaling — are looking to improve scalability both vertically and horizontally.

In the above approach, multiple L2 or L3 networks share the base layer, which has the advantages of 1) inheriting strong security at the base layer, eliminating security fragmentation, 2) achieving theoretically unlimited scalability through parallel running networks, and 3) achieving more seamless and secure interoperability and composability by sharing the settlement or data availability layer.

In my opinion, this is the best model for the mass adoption of blockchain because 1) the security of the blockchain network needs to be unified and not fragmented for large amounts of money to flow, 2) it needs to provide a high level of scalability for users, and 3) even if there are multiple networks, the transfer of assets and interactions need to be seamless and secure.

3. Zoom in: Polygon 2.0

3.1 Polygon PoS → Validium

Source: Polygon

Before we get into the architecthure of Polygon 2.0, Polygon co-founder Mihailo Bjelic posted a proposal on the governance forum to upgrade the existing L1 network, Polygon PoS, to validium to realize the vision of Polygon 2.0. Polygon already has an Ethereum-compatible ZK L2 technology called Polygon zkEVM that is currently working well.

First, with the introduction of zkEVM, it can rely on the security of the Ethereum network to a certain extent because validity proof of the computation results of the Polygon PoS network will be verified on the Ethereum network. Second, the existing Polygon PoS validators will manage the transaction data instead of the Ethereum network, achieving much lower fees and faster speeds compared to the roll-up mode.

This changes the role of the validators on the Polygon PoS network slightly: first, they will continue to ensure the availability of transaction data, and second, they will act as sequencers to determine the order of L2 network transactions.

3.2 Polygon 2.0 Architecture: Networks of ZK-powered L2 Chains

Source: Polygon

Polygon 2.0 is an ecosystem of ZK L2 chains based on Ethereum. These ZK-powered L2 chains are called “Polygon Chains”. What does the structure of Polygon 2.0 look like in terms of both vertical and horizontal scalability improvements? Just like the Internet has a layered structure called the Internet protocol suite, Polygon 2.0 comprises layers that perform different roles.

3.2.1 Staking Layer

The Staking Layer is the layer responsible for all things about Polygon 2.0 validators, and it exists on the Ethereum network as a smart contract, of which there are two types:

• Validator Manager — A smart contract that manages the pool of validators in the Polygon 2.0 ecosystem, including a list of all validators, which validators are participating in which Polygon Chains, their staking size, staking/unstaking requests, slashing, and more.

• Chain Manager — A smart contract that exists for each Polygon Chain that manages the list of validators, configurations for validating that chain (e.g., maximum/minimum number of validators, slashing conditions, type/size of tokens required for staking), etc.

Validators can join the common validator pool in Polygon 2.0 by staking tokens and participate as validators on multiple Polygon Chains if they wish. Validators in Polygon 2.0 are basically responsible for ordering and validating users’ transactions to create blocks, as well as the proving process of generating ZKP and ensuring the availability of transaction data.

Validators are compensated for their various roles with 1) protocol rewards, 2) transaction fees from participating Polygon Chains, and 3) additional rewards from Polygon Chains (e.g., native tokens).

3.2.2 Interop Layer

Source: Polygon

The Interop Layer enables seamless cross-chain messaging across the Polygon 2.0 ecosystem, making users feel like they are using a single network, although they actually use multiple networks.

Every Polygon Chain manages Message Queues, which are messages sent to other Polygon Chains containing 1) the content, 2) the destination chain, 3) the destination address, and 4) metadata. Message Queues have a corresponding ZKP, and if the ZKP of a particular message is verified on Ethereum, the destination chain can safely perform this cross-chain transaction.

However, since ZKPs are expensive to validate on Ethereum, the Interop Layer also adds an Aggregator component that brings together multiple ZKPs generated by Message Queues in Polygon Chains and allows them to be validated cheaply on the Ethereum network. Because the Aggregator needs to be decentralized for liveness guarantee and censorship resistance, it is managed by Polygon 2.0’s common validator pool.

In fact, the cross-chain interaction is such that as soon as the Aggregator receives the ZKP, the destination chain optimally processes the transaction, giving users a “Unified Liquidity” experience, as transactions can be processed almost instantly and atomically, despite using multiple networks.

3.2.3 Execution Layer

The Execution Layer is the layer where the actual computation takes place in Polygon Chains, and it has components similar to a typical blockchain network (e.g. P2P communication, Consensus, Mempool, Database, etc.).

Polygon Chains are highly customizable at the client level, including the native tokens, transaction fee flow, additional validator rewards, block time and size, checkpoint time (how often ZKPs are submitted), and rollup/validium selection.

3.2.4 Proving Layer

Since Polygon 2.0 is a collection of ZK-powered L2 chains, ZKPs play a very important role, and the Proving Layer is responsible for generating ZKPs for every transaction on Polygon Chains. The prover utilizes Plonky2, developed by the Polygon team.

3.3 New Token: $POL

3.3.1 Tokenomics

While we’ve been taking a closer look at Polygon 2.0, it’s clear that achieving this vision is as much about protocol economics as it is about technology. In response, Mihailo Bjelic, Sandeep Nailwal, Amit Chaudhary, and Wenxuan Deng have proposed a new token model to the Polygon community called $POL.

In the whitepaper, they set the design goals of $POL as 1) Ecosystem Security, 2) Infinite Scalability, 3) Ecosystem Support, 4) No friction, 5) Community ownership, and proposed the following utilities:

• Validator staking: Validators in Polygon 2.0 must stake POL tokens to participate in the validator pool.

• Validator rewards: A predefined rewards must be provided to validators continuously. Validators are rewarded by default with protocol rewards and also receive transaction fees or additional incentive rewards from Polygon Chains.

• Governance: The token will be utilized for governance, and the governance framework has not yet been disclosed. There will be a new community treasury, which will be managed by POL token holders and will help support the ecosystem.

The initial supply of POL tokens is 10 bilion migrated 1:1 from MATIC, with a proposed total inflation rate of 2%:

• Validator rewards: Validators will be given a share of an additional 1% of the total supply for the first 10 years, after which the community can decide through governance whether to maintain or reduce this.

• Ecosystem Support: For the first 10 years, an amount equal to 1% of the total supply will be provided to newly introduced community treasuries, which can be utilized for ecosystem support through community governance. After 10 years, the community can decide whether to maintain or reduce this amount through governance.

Source: Polygon

Unlike the existing MATIC tokenomics, where the total supply of MATIC is fixed at 10 billion, the POL token has an inflation rate of 2% per year for 10 years. This inflationary supply will serve the network well until the Polygon 2.0 ecosystem is sufficiently mature. The community can reduce it through governance once the Polygon 2.0 ecosystem is well established and sustainability is achieved with transaction fees. Considering the current inflation rate of the Bitcoin network is around 1.8%, 2% is not a huge number.

3.3.2 Simulation

But how realistic is the new POL token’s tokenomics? Will the network be secure enough, will validators be incentivized enough, and will the ecosystem be supported enough? Polygon has simulated these questions and included the results in the whitepaper.

Based on a range of assumptions, it becomes evident that even in the worst case, validators could garner an annual incentive of 4–5%, and the Community Treasury will be sufficiently financed. (Note that the size of the community treasury is calculated using an average price of $5 for 1 POL).

• Average transaction fee on public Polygon Chains: $0.01 (current average fee on Polygon PoS), average number of validators: 100, average TPS: 38.

• Supernets Polygon Chains has an average transaction fee of $0.001, average number of validators: 15, average TPS: 19.

• Average annual operating cost per validator: $6,000 (applying a modified version of Moore’s Law to halve the operating cost every three years)

Source: Polygon

3.3.3 Comparison with Other Tokens

At first glance, the proposed POL tokenomics is similar to Polkadot’s DOT, Cosmos’ ATOM, and Avalanche’s AVAX, but some differences exist.

First, there’s a big difference between POL and DOT: for a network built on the substrate to become a parachain, it requires a large amount of DOT tokens to be locked into the Polkadot relay chain through a process called a parachain auction. In Polygon 2.0, however, anyone can deploy Polygon Chains, and validators who meet the validation requirements can participate.

Second, POL is subtly different from AVAX and ATOM(ICS-enabled) in that all three have in common that validators staking a native token can participate as a validator on multiple networks, but they differ in terms of the inflation rate, governance, etc.

4. Zoom out

As the blockchain industry and technology mature, there are more and more attempts to improve the scalability of the network, both vertically and horizontally, and Polygon 2.0 is following this path. While other leading L2 projects (e.g. Optimsim, Arbitrum, zkSync, Starknet) are making similar attempts, Polygon 2.0 is differentiated by 1) zkEVM technology with a high degree of Ethereum compatibility, and 2) a cross-chain solution utilizing ZKP.

While other projects have referenced multiple L2/L3 chains with inter-chain solutions, very few offer detailed cross-chain solutions. Lately, cross-chain projects have been utilizing ZK technology (such as zkBridge, Electron Labs, Polymer Labs, and so on), and Polygon 2.0 also possesses the capability to harness ZKP in its cross-chain solution, aiming to deliver an exceptional cross-chain user experience.

Let’s observe whether Polygon 2.0, together with ZK technology, can achieve both scalability and interoperability, potentially becoming the value layer of the internet.

Thanks to Kate for designing the graphics for this article.