Reading
TBW #43: Towards a wave of acquisitions in Europe

TBW #43: Towards a wave of acquisitions in Europe

Read all about The Big Whale's 43rd Premium newsletter.

Hello Whales and welcome to the little newcomers who have just joined us in the Premium edition! There are already over 1,500 of you reading us every week. Thank you so much 😍

To devour this week

🖊️ The editor's editorial
🗣 Our exclusive news
🔶 The Polygon star
👁 A commercial success

THE BIG SPLASH

The Battle of the Layers 2 ⚔

If there's one good thing about the Bear Market, it's that it forces us to get back to basics, to focus on projects and therefore on... technology!

The coming year, and probably the next few, will be exciting in this regard, as they will offer us a battle between the various protocols being built around Ethereum ⚡ ️

Who will win this battle? Nobody knows. What is certain is that there is no shortage of contenders - layers 2 and sidechain.

This week, we've decided to focus on one of them: Polygon 👀

In no time at all, the sidechain, known for its effectiveness on NFTs (The Big Whale has launched its own on it) has managed to carve out a prominent place for itself in the ecosystem, particularly with traditional businesses.

But this protocol isn't the only one. Whether it's StarkNet, zkSync and many others (which we'll tell you about soon), they all have arguments to make to become the benchmark in the Ethereum ecosystem.

THE BIG NEWS

Our EXCLUSIVE NEWS 🗣

👉 Towards a wave of acquisitions in Europe

The sales season could start earlier than expected in the Web3 ecosystem. According to our information, a Paris-based investment bank has been commissioned by two European players - an institutional and a major company in the sector - to assess buying opportunities in the 🇪🇺 sector, particularly exchange platforms and market makers.

"There are some interesting companies like Bitstamp that could be a prime target," blows one banker.

This historic platform - it was created in 2011, just two years after bitcoin's debut - has the advantage of being based in Luxembourg and it has a licence in Malta. And to top it all off, the platform is said to be in financial difficulty, which could bring the price down... Other players such as French market maker Woorton are also mentioned in the list of potential targets.

THE BIG STORY

Polygon: the blockchain that businesses love

In just a few months, the Ethereum sidechain has become one of the preferred partners of businesses. We investigated the reasons for such success 💰

These are not easy times for crypto projects. Because of the fall in the markets, the outlook is rather bleak, but some are still managing to pull through.

This is the case with Polygon 🔥

Much like the irreducible Gauls in the Asterix gang, the Ethereum sidechain, which has become a benchmark in NFTs, continues to develop and is multiplying collaborations with major companies: Walmart, Meta, Starbucks, Reddit. The list goes on and on!

How do you explain such success? That's what we set out to understand 🐳

One of the main advantages of Polygon, whose network was launched in 2020, is undoubtedly its low fees. They very rarely exceed a few pennies, and that's a real strong point in the NFT ecosystem and in a period like ours when money isn't flowing freely.

Then there's also the speed of transactions, which take little more than a few seconds to execute, while being fully interoperable with Ethereum: all transactions that go through Polygon are recorded in the registry of the second-largest blockchain on the market.

"Polygon launched at the right time," explains Quentin de Beauchesne (*), co-founder of start-up Ownest and a validator on the network since 2020. "In February 2021, at the height of the crypto boom, Ethereum reached its limits: the network was unusable for those with limited funds and Polygon was able to establish itself as a complementary solution."

"It's simple," he continues, Polygon, which is backed by venture capital giants such as Sequoia and Softbank and Web3 (Coinbase, Animoca Brands...), "has reached as many daily transactions as Ethereum in less than two months".

Today, it's around three times as much!

Nansen1

Polygon claims to have the potential to handle up to 65,000 transactions per second (compared with 15 on Ethereum). In reality, we are still a long way off: the network currently records "only" 40 transactions per second, no doubt also because the market is much less active.

The market capitalisation of its MATIC cryptocurrency is currently $9 billion (compared with $200 billion for Ethereum). Its token has been the darling of the markets for the past two years. Investors, who sensed the bonanza and bet on the protocol's adoption, pounced on it during private sales 🤑

A perfect partner for Ethereum

Beyond tech and finance, Polygon's smart move was to play up the complementary nature of Ethereum. "There's clearly an ideological alignment," explains Jimmy Ragosa, Ethereum expert and advisor to the Sismo project.

"All the people advising Polygon are players who are known and appreciated by the Ethereum community," he adds. It's a rather smart choice, given that projects can tend to compete fiercely.

"By presenting itself as a complement to Ethereum, Polygon has avoided finding itself in the category of 'Ethereum Killers' like Solana or Cardano," continues Jimmy Ragosa.

Reddit, Meta, Starbucks...

As a result, Polygon is attracting projects like flies, and not just in the Web3 ecosystem. In fact, it's even on the side of "traditional" companies that the protocol is gaining the most ground.

Polygon has signed with social network Reddit, which we heard a lot about in 2021 during the stock market craze surrounding GameStop.

More than 6 million Reddit users have set up a wallet to receive NFTs created by the social network. That's more than the number of users of OpenSea, the largest NFT exchange platform! 😅

Despite the overall fall in prices and activity in Web3, that of NFTs on Polygon has continued to rise, as this graph shows.

Nansen2

Polygon has also been chosen by Meta (formerly Facebook) as the protocol for creating NFTs directly within Instagram. "A platform of this size will help us move more than a billion users into Web3," said Sandeep Narwal, the Indian co-founder of the protocol, in early November

Another giant to have recently fallen for it: Starbucks. The American group has developed its new loyalty programme with Polygon. Currently in beta testing, "Starbucks Odyssey" will allow customers to collect the brand's NFTs and access exclusive experiences.

You want more?

Because there's more to come! Nike will launch a virtual clothing platform (.Swoosh) based on Polygon in 2023, a similar choice to that of former US President Donald Trump for his collection of NFTs. Even US supermarket giant Walmart is working with them!

"They're really good at communication. They were among the first to emphasise their low energy expenditure," points out Ouriel Ohayon, co-founder of the ZenGo wallet, which has been compatible with Polygon for a few weeks.

This strategy enabled them to ride the "responsible" and "green" wave ahead of Ethereum's Merge, which took place in September 2022 (it reduced the protocol's energy consumption by changing its consensus algorithm, ed. note). "It clearly gave them a head start over the others," he points out.

When you ask most of the specialists, the effectiveness of Polygon's sales teams also comes up very often.

"Polygon recruited a lot of people from big Web2 groups and used their skills and contacts to attract these big groups," confirms Jimmy Ragosa.

Same tone of voice from Ouriel Ohayon: "When Reddit finds itself talking to former Google people, inevitably it goes well. They speak the same language!"

For Jimmy Ragosa, "this leads to a virtuous circle which, combined with low transaction fees, makes Polygon an ideal launch pad for companies".

But beware, commercial power isn't everything, as Owen Simonin, CEO of Meria (formerly Just Mining), which manages a Polygon validation node and offers staking to its customers, explains: "At one point they were a little too focused on marketing compared to tech, but things have changed and it's become very pleasant to work with them."

American Ryan Wyatt is the personality who best embodies this strategy. As head of Polygon Labs - the commercial arm of the ecosystem - he previously held the position of "Head of Gaming" at... YouTube. Along with Ian Rodgers (ex-LVMH), who was recruited by Ledger at the end of 2020, he is one of the Web3 ecosystem's most exciting "catches".

Ryan Wyatt is the head of a $100 million fund whose aim is to support the development of the Polygon ecosystem, which is also drawing some criticism from competitors 😡

Is Polygon showering partner companies?

"Polygon pays for companies to use its protocol", tweeted Mert Mumtaz, co-founder of start-up Helius, developed on the Solana blockchain, in early December.

Polygon co-founder Sandeep Nailwal defended himself, explaining that "Polygon was open to strategic deals, but not so stupid as to give away millions of dollars for free". He added: "Brands want to rely on the Ethereum ecosystem - of which Polygon is a part - and not on half-baked layer 1s", in a reference to Solana's successive failures.

On the matter, however, Polygon is not free of blame. Although the protocol is not accustomed to technical problems, its network suffered an 11-hour disconnection in March 2022because of a node problem.

In December 2021, a surprise (and controversial) update had to be hastily implemented to fix a critical vulnerability. "Updates have been quite frequent recently," notes Arnaud Gugumus, Meria's CIO.

"They are speeding up and finally starting to develop real features on Polygon rather than just relying on Ethereum and Tendermint standards," he says.

But how do you judge its level of security?

"Security is ensured by a group of 100 highly involved validators, whose governance is managed in an increasingly decentralised way," Quentin de Beauchesne points out. "The aim of this security is to register the state of the chain in Ethereum, which then carries the final security."

Polygon facing stiff competition from L2s

To date, the main proposition of the Polygon ecosystem is the "Polygon PoS". It is a sidechain of Ethereum and not a true "layer 2", named after Ethereum's secondary layers.

The difference between the two?

Polygon does not rely on Ethereum for its security and has its own consensus. "It's not a level of security equivalent to a layer 1 chain, but a compromise to take advantage of speed and costs," concedes Quentin de Beauchesne.

This is the major criticism that can be levelled at it, at a time when we are witnessing the emergence of "rollups" (the famous "layers 2"), presented by most experts as the future standard for ensuring Ethereum's scalability 🚀

There are two families of "rollups":

"Optimistic rollups" (Arbitrum, Optimism, etc.Their problem is that it is sometimes necessary to wait seven days before transactions are fully validated on Ethereum. This inconvenience has prompted the creation of a new generation of rollups, "ZK rollups", which can process them almost instantly!

According to Ethereum creator Vitalik Buterin, ZK rollups will become the norm in the coming years, but this technology is not yet mature.

No solution offers complete compatibility with the Ethereum Virtual Machine (EVM). Specific solutions can be developed for very specific applications (this is the case with Sorare, which has its own ZK rollup developed by Israeli start-up StarkWare), but these are by no means "universal".

Polygon therefore has the luxury of playing for time, but it would be very risky to rest on its laurels. Hence the December 2021 purchase of Mir Protocol for $400 million (in MATIC tokens).... This acquisition enabled the company to announce the future launch of an EVM-compatible ZK rollup. This network, called "Polygon Zero", is currently in the test phase. It should be available in 2023 ⌛ ️

"The Polygon team has made choices to offer viable solutions as soon as possible," says Quentin de Beauchesne. "They continue to prioritise what is most effective, such as buying back ZK solutions rather than starting from scratch or almost from scratch."

Will that be enough? 🤔

"StarkNet (the network developed by StarkWare, editor's note) and ZkSync retain a head start because they focused on the subject long before the Polygon acquisitions, but everything can change in the coming year," testifies Jimmy Ragosa.

We put the question to Henri Liuetad, in charge of developer relations at StarkNet and a professor at the Léonard-de-Vinci engineering school (ESILV), to find out what he thought: "While Polygon is moving towards an experiment that allows developers to keep the same programming language as Ethereum, we have opted for superior capabilities that will allow use cases to emerge that are impossible elsewhere. We are betting on developers' creativity by offering them a more powerful tool."

Towards a speculative bubble in L2 tokens?

Many experts believe that Ethereum's Layers 2 will be the driving force behind the next speculative bubble, like the one seen on Layers 1 in 2020-2021 (Solana, Avalanche, Terra, etc.).

At this little game, the most recent projects could attract investors. The future token of the StarkNet network is one of these. Its launch is already seen as a major event in 2023, as is that of ZkSync.

"Polygon will benefit less from this speculative moment and the challenge for its teams will be to make the most of the volumes and the number of projects that are being developed on it", whispers an expert.

As is often the case in Web3, it will be necessary to be able to separate the "noise" from the markets to concentrate on the tangible. And Polygon is certainly well placed in this battle.

(*) Quentin de Beauchesne is a minority shareholder in a private capacity in The Big Whale

Discord

THE BIG FOCUS

Laszlo Szabo: "Polygon has a formidable business strategy"

GIF

The co-founder and CEO of Kiln has just taken over the management of one of the Polygon network's 100 validators.

He talks to us in detail about the commercial strategy of the protocol's teams to ensure that companies make a long-term commitment!

The interview is available on The Big Whale website 🐳

You can also listen again to his appearance on Discord during their recent fundraising (€17 million).

This edition was prepared with ❤️ by Raphaël Bloch and Grégory Raymond. The Big Whale is a free and independent media. By supporting us, you are contributing to its development.
Everything that matters in Web3. Each week.
25€/month
12.5€/month
This offer is available until the 30.04.2024. Try insider for free, for 30 days.
Subscribe
All that matters in crypto.
Deciphering, insights, Data. Access the best of the ecosystem.
Subscribre
In this article
No items found.
Read next
No items found.
In this category
No items found.