The token upgrade has brought significant changes to the token economics, with its design considerations covering the future roadmap and value capture.

Authored by: hitesh.eth, Crypto KOL

Translated by: Golden Finance xiaozou

What changes will occur in the token economics after MATIC is upgraded to POL, and what impact will it have on the future value of the POL token? In this article, we will explore this together.

Polygon announced two major plans in last year's roadmap. The first plan is to upgrade the Polygon PoS chain to the ZkEVM Validum chain to achieve higher scalability, faster finality, and connectivity to AggLayer. The other plan is to initiate the migration of the MATIC-POL tokens at a 1:1 ratio to launch the POL token.

Starting from September 4, 2024, holders can migrate their MATIC tokens at a 1:1 ratio to the new POL tokens. CEX (centralized exchanges) such as Binance and OKX will handle the migration on behalf of users.

Simply follow their announcements, cancel all outstanding orders, and if you hold MATIC, you will receive POL tokens.

Some DEX (decentralized exchanges) and DEX aggregation platforms will use their own UI for the migration from MATIC to POL. You can also use the Polygon migration portal or smart contract address to complete the migration on your own.

Interestingly, the token upgrade has also brought significant changes to the token economics, with its design considerations also covering the future roadmap and value capture.

What changes have been brought about?

The Matic token inflation rewards for Polygon validators ended last year after completing the inflation cycle.

We all know how difficult it is to sustain network growth without token rewards, so they need to address this issue to maintain the orderly operation of the network and sustain the enthusiasm of validators.

There will be 200 million new POL tokens entering circulation annually for the next 10 years to reward validators. If 1 POL = 0.5 USD, then the value of these 200 million tokens is equivalent to 100 million USD.

This is the standard reward they will receive, but Polygon also provides additional incentives to encourage them to play more roles in supporting other chains.

Polygon has established an L2 creation technology stack and a unified liquidity layer called AggLayer, which will help L2 provide sufficient liquidity for its ecosystem through the Polygon network.

The idea here is very straightforward. As a staker, you will delegate your stake to validators, who will mint coins through the inflation cycle, earn fee income from aggregators, and receive additional token rewards from the CDK chain as part of the Polygon network.

The rewards are divided into two types:

• Providing CDK chain token rewards to stakers
• Sharing fee income from AggLayer with stakers

More forms of rewards are still in preparation:

• Sharing sorting income
• Zero-knowledge proof income, and so on…

This is like a validator payment network, encouraging them to play multiple roles at different times.

We have discussed the foundation of the new token economics.

Token demand side:

I think this is very simple—it will be demand driven by staking. Less than 33,000 MATIC holders are participating in staking, and due to the lack of rewards, the overall staking rate has been low recently.

The current staking yield is around 5.65%, better than ETH but lower than Solana and Avalanche. After the POL migration and the activation of the new inflation policy, the yield should increase to 7-8%, and with more adoption of AggLayer and CDK, the yield may continue to increase.

Ultimately, the best-case scenario is for POL stakers to start receiving additional token rewards in the form of airdrops, similar to Celestia… The likelihood of this happening is quite high.

There are already over a dozen well-funded projects on AggLayer, and they may conduct some airdrops at the right time.

This behavior will drive the formation of FOMO and may increase the number of stakers from 33,000 to at least 100,000. Celestia has 400,000 stakers, from which you can see the potential for an increase in staking demand.

Overall, I think this is a good time for the MATIC token upgrade. With Polygon's overall technical deployment, they can drive more demand for the token by establishing more partnerships on their key infrastructure product (AggLayer).

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