Layer 2 scaling solution Polygon has maintained strong network activity even as the broader cryptocurrency market and its native token, MATICsuffered a slowdown in the second quarter of 2024, according to a new report from market intelligence platform Messari.
Polygon withstands crypto market crisis
Although MATIC saw its circulating market cap drop by 44.3% to $5.5 billion in the quarter, placing it as the 20th largest crypto asset (currently ranked 26th), the protocol’s on-chain metrics remained strong.
This is in contrast to larger cryptocurrencies such as Bitcoin and Ethereum, which have seen their market capitalization drop of 12% and 6%, respectively, in the same period.
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The main factor behind Polygon’s stability in network performance during the second quarter of the year, according to for Messari, it was the implementation of Ethereum Improvement Proposal (EIP) 4844 on the Polygon mainnet in Q1 2024.
This update, which introduced “blobs” to the network, significantly reduced the average transaction fee on Polygon from $0.017 to just $0.01, resulting in a 41.1% drop.
As a result, Polygon’s revenue derived from network transaction fees fell 40.6% to $4 million in Q2 2024. However, this drop was not due to a decrease in user activity, but rather to the lower fees made possible by EIP-4844. In fact, Polygon’s user metrics continued to climb, with the protocol posting strong growth across several key metrics.
Activity in the chain and ecosystem growth
According to the report, the average number of daily active addresses rose to 1.2 million, a 47.6% quarter-over-quarter (QoQ) increase. The average number of addresses returned daily increased further, by 50.5%, to 1 million. Additionally, new addresses added to the network grew by 31.7%, to 167,800 per day on average.
The report also notes that Polygon’s transaction volume has also remained stable, averaging 4.1 million daily transactions, slightly below its all-time high and representing an increase of 3.9% over the previous quarter.
In comparison, other Layer 2 networks, Arbitrum (ARB) and Base, had an average daily active addresses of 545,000 and 528,000, respectively.
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While Polygon’s decentralized finance (DeFi) total blocked amount (TVL) fell 22.9% to $1 billion, this was largely attributable to the decline in the price of MATIC rather than a net capital outflow. Messari reported that TVL denominated in MATIC actually increased 38.1% to 1.8 billion tokens.
However, DeFi protocols on Polygon saw mixed results, with Aave, Uniswap, and SushiSwap experiencing TVL drops ranging from 13% to 25%. Quickswap saw the largest drop at 35%.
Lastly, Polygon’s non-fungible token (NFT) marketplace also remained stable, with average daily NFT volume falling slightly by 5.7% to $1.8 million. However, the number of daily NFT sales increased by 1.8% to 52,000, underscoring continued interest from collectors.
At the time of writing, MATIC has seen a mere 5% increase to a trading price of $0.512, after hitting a 2-year low of $0.428 on July 5.
Along with this worrying price action, the token has seen a 30% drop in trading volume in recent days, totaling $197 million, according to CoinGecko. data. All of this resulted in an 82% difference from MATIC’s all-time high of $2.91, which was set during the 2021 bull run.
Featured image from Shutterstock, chart from TradingView.com