Polygon ecosystem development and upcoming zkEVM launch add to MATIC’s bullish momentum

Matter Labs, the firm behind Polygon (MATIC), has announced that the beta version of its zero-knowledge Ethereum virtual machine (zkEVM) will go live on March 27, 2023. starting public network before zkSync and Scroll.

Zk-based convolution technology is considered the gold standard for scaling. Existing optimism-based summaries such as Arbitrum and Optimism have EVM capability but are less secure as they are “fraud proof”. Malicious transactions in an optimistic pool can remain valid for up to seven days or more before being rolled back. Thereby giving the advantage of zk technology.

Moreover, the focus of the Ethereum (ETH) community on Liquid Staking derivatives may shift towards L2 networks after the expected update in Shanghai in March. This is because the update after Shanghai, EIP-4844, will reduce the cost of L2 convolution by 10–100 times. A working zk-based storage solution is likely to attract new projects to its ecosystem.

With the upcoming launch of zkEVM, Polygon has created a strong bullish narrative in the market. The team’s efforts in the Web3 space are promising and showing signs of growing activity. The growth of its DeFi ecosystem has stalled, which could likely continue for a longer period of time.

Technically, the market structure for Polygon looks optimistic. However, the recent 78% rise in MATIC price since the start of 2023 could lead to a correction as speculative buying cools off. This situation can be an ideal MATIC entry for a swing trade.

Polygon’s DeFi Sector Has Halted, But Web3 Activity Grows

Since early 2023, Polygon has seen a surge in NFT activity, especially for low-value gaming assets. In accordance with data According to Dune Analytics, NFT sales on Polygon exceeded Ethereum sales for two consecutive months in December 2022 and January 2023. While Ethereum still leads in total volumes, Nansen’s data on NFT activity shows that minting volumes and sales on Polygon have been on the rise since then. beginning of 2023.

Sales volume of NFTs and mints at Polygon. Source: Nansen

Meta has also chosen Polygon as the base layer for creating digital collectibles on its Instagram social media app. The feature is currently in limited testing, but should soon hit Instagram’s 1.28 billion users.

In November 2022, Matter Labs appointed former YouTube gaming executive Ryan Watt to lead its gaming venture, Polygon Studios. Watt told Cryptooshala that Polygon’s Web3 strategy takes a holistic approach, bringing together “Web2 companies including Starbucks, Adobe, Clinique and Stripe to integrate Web3 features.”

In addition, more than 60 metaverse projects are being developed on the blockchain, including leaders in Sandbox, Decentraland and Somnium Space. Finally, Polygon’s $450 million raise in February 2022 will likely provide the necessary tailwind to continue development on the Web3 front.

On the other hand, the growth of the Ethereum sidechain in the DeFi sector has stalled. It may remain tight due to ongoing macroeconomic stress and stablecoin regulations.

Overall liquidity in DeFi applications at Polygon has remained below November 2022 levels, suggesting that users remain reluctant to interact with these protocols. In addition to security risks, declining returns in the DeFi space are also an important reason for the decline in activity.

General liquidity in DeFi applications at Polygon. Source: Defillama

By comparison, Arbitrum’s DeFi ecosystem has fared relatively better than most due to its token distribution pending and active development.

However, Polygon ranks fifth in overall liquidity among DeFi platforms, ahead of Avalanche, Solana, Optimism, and Fantom, which is encouraging. Favorable liquidity conditions are a critical need for a thriving DeFi ecosystem, and Polygon can capitalize on this when it focuses on DeFi. Moreover, the launch of zkEVM could also attract the development of DeFi.

Investors bullish on MATIC

Futures market data shows that traders are bullish on the MATIC with increased open interest volume towards 2022 highs and a long/short ratio of 1.58. While the bullish outlook is reassuring, prices may pull back to wipe out overleveraged positions.

Volume of open interest for MATIC futures contracts. Source: CoinGlass

The intranet balance on the exchanges suggests that not many investors moved their coin exchanges as the price rose from $0.75 to $1.25. This speaks to the confidence of buyers who are unlikely to sell unless the price drops below the $0.75 support.

The balance of the polygon on the exchanges. Source: glass knot

Solana (SOL) price rally may fizzle out due to weak fundamentals

However, the price could return to the $1 support level as the Relative Strength Index (RSI) metric starts to find resistance around the 65 level. Bullish momentum likely calls for consolidation around the 50 RSI level before continuing higher.

MATIC/USD daily chart. Source: Trading View

The organic development of NFT Polgyon trading activity and the building of a bullish narrative around zkEVM are likely to continue pushing the MATIC price higher in 2023. Needless to say, a lot will depend on the price behavior of the market leaders in BTC and whether Ethereum maintains its uptrend.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.

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