What is the Token Economics of MATIC?

This post covers the token economics of MATIC, the native token of the Polygon Ecosystem.

Token economics (tokenomics) studies the design and implementation of blockchain-based tokens. Understanding token economics is crucial for anyone considering investing in or using a particular token.

This post covers the token economics of MATIC, the native token of the Polygon Ecosystem.

A quick intro to Polygon & MATIC

Polygon was launched as Matic Network in 2017 and rebranded to Polygon in February 2021.

The Ethereum blockchain is slow and costly. Polygon has a bunch of products and services to solve this problem.

Polygon's software development kit enables the building of Ethereum sidechains - blockchains linked to Ethereum via a two-way peg. These sidechains are of multiple types:

1. Bundling transactions into blocks that are batched into a single submission to the Ethereum blockchain (Plasma Chains).

2. Allowing multiple transfers to be bundled into a single transaction (zk-Rollups).

3. Plasma Chains which also scale Ethereum smart contracts (Optimistic Rollups).

Polygon PoS is an EVM-compatible Ethereum sidechain that is secured by a permissionless set of PoS validators.

1. Issuance & Emission

Token issuance is the creation and distribution of tokens as part of a specific event or offering e.g. airdrop, ICO, reverse ICO, IEO, IDO, DAICO, ETO, STO, and SAFT. Token emission is the ongoing process of creating and releasing new tokens into circulation e.g. through mining or staking.

MATIC is a fixed supply token with premined rewards and a maximum supply of 10 billion.

The initial token distribution took place in April 2019 through a Seed Round, Early Supporters Round, and Initial Exchange Offering. The distribution was as follows:

• Private Sale: 3.80%

• Binance Launchpad Sale: 19%

• Team: 16%

• Advisors: 4%

• Network Operations: 12%

• Foundation: 21.86%

• Ecosystem: 23.33%

2. Utility

Tokens derive value from the utility of the network that they are used in. In other words, the value of a token is determined by how useful it is within the specific ecosystem in which it is used. This can be based on a variety of factors, such as:

• the size and activity of the network,

• the demand for the goods & services that can be purchased with the token, and

• the perceived value of the network to its users.

As the utility of the network increases, the value of its associated tokens is likely to increase as well.

Use cases of MATIC

The native token of the Polygon ecosystem is MATIC. This token serves the following purposes:

1. Payment of transaction fees in the network.

2. Payment of fees for deploying smart contracts.

3. Unit of payment & settlement between participants in the Polygon ecosystem.

4. Staking on the Proof-of-Stake sidechains.

5. Payment of governance fees for submitting proposals.

6. Ecosystem Development Fund which is financed through a portion of the transaction fees & staking rewards.