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Polygon Unlocks Final Vested Tokens – MATIC Deflation Starts?

Last Updated February 22, 2024 9:08 AM
James Morales
Last Updated February 22, 2024 9:08 AM

Key Takeaways

  • The final tranche of vested MATIC was released to the Polygon Foundation on Thursday.
  • Without the pressure of further token unlocks, MATIC  could become deflationary.
  • However, Polygon is due to replace MATIC with POL, a new crypto with updated tokenomics.

When Polygon (previously known as the Matic Network) first launched its native token, stakeholders received 32.3% of the total MATIC supply. Meanwhile, the remaining tokens were in a vesting contract. The contract was locked, coming on the market over the coming years.

On Thursday, February 22, the vesting contract  released a final cache of 273 million MATIC to the Polygon Foundation. The full supply of 10 billion tokens is now in circulation, setting the stage for MATIC to become a deflationary cryptocurrency.

Is MATIC Deflationary?

Unlike Bitcoin, which has a hard-capped supply of 21 million coins, which, once reached, won’t increase or decrease, MATIC follows the more dynamic supply model deployed by proof-of-stake blockchains.

To fund staking rewards, Polygon creates new tokens known as “emissions.” However, to balance out the new coins generated by staking, a share of the MATIC spent on gas fees is permanently removed from circulation via a burn mechanism.

Matic burn
Percentage of total MATIC supply burned. Source

In other words, as long as there is sufficient transaction activity, the net effect of emissions and burning will be a reduction in the total MATIC supply.

Of course, while there was still a stockpile of vested MATIC periodically releasing new tokens into circulation, this contributed to overall inflation. But now all tokens are unlocked, the total supply should remain stable or even drop.

Polygon 2.0: Changes Anticipated When MATIC Becomes POL 

Last year, Polygon announced the introduction of a redesigned protocol architecture. As part of the transition to Polygon 2.0, the announcement explained that MATIC would convert to a new token: POL.  

As well as replacing MATIC as a gas token for Polygon chains, POL will function as a governance token. This means it will give holders a stake in decisions that affect the Polygon ecosystem.

To enable a 1-for-1 migration from MATIC, POL had an initial supply of 10 billion tokens. 

A swap contract that lets MATIC holders exchange their tokens for POL came out in October. However, POL staking is not yet live and MATIC remains the Polygon’s native token for now.

POL Tokenomics

For the first 10 years, the POL emission rate will be 2% a year. This will be split evenly between validator rewards and contributions to the Community Treasury. 

After 10 years, both the 1% reward emissions and the 1% Treasury emissions can fall, according to the new governance framework. However, they cannot rise above the initial rate.

The Polygon 2.0 whitepaper  says: “Once the Polygon ecosystem and Web3 reach maturity, the ecosystem will likely not need significant economic support anymore.

“At that point, the community should intervene and decrease or discontinue the emission for the Community Treasury.”

In theory, stakeholders could also move to slash reward emissions, however, doing so would be hard to sell to validators. 

After 10 years, Polygon’s new tokenomics will lead to an inflation rate of anywhere between 0 and 2%.

Noting that the predetermined emission schedule will increase the scarcity of POL while making the token’s supply more predictable, the whitepaper argues that “predictability and scarcity attract protocol and market participants and provide a sense of reliability,” for the ecosystem.

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