Dialogue with Polygon Co-founder: Delving into Polygon 2.0, Understanding the L2 War and Business Models

Compilation & Organization: Deep Tide TechFlow

In this issue of Empire, Sandeep Nailwal, co-founder of Polygon, elaborates on the bold approach of Polygon 2.0 to achieve infinite scalability in blockchain networks. This conversation explores various components of Polygon 2.0, including innovations in zk EVM and the pillars of governance. Nailwal also outlines the perspectives presented in the Polygon whitepaper, viewing 2.0 not only as a scalability solution but also as a foundational "layer of internet value."

Here are the main points from this conversation, transcribed and organized by Deep Tide:

Host: Jason, Empire Podcast

Speaker: Sandeep Nailwal, Co-founder of Polygon

Playback Source: Empire Podcast

The Goals of Polygon and the Importance of Web3

Nailwal pointed out that Polygon has been dedicated to building a solid infrastructure for the widespread application of Web3. He believes that current blockchain applications have not achieved true scalability, as no application or chain can handle millions of daily active users without crashing.

Nailwal argues that people's digital lives were previously controlled by intermediaries, which have lost public trust over the past decade, leading to a low-trust environment. Web3 aims to provide a trustless environment where people's digital lives are based on decentralized trust mechanisms, free from the control of intermediaries. To achieve this goal, infrastructure capable of accommodating hundreds of millions of daily active users is needed.

Nailwal noted that the goal of Polygon 2.0 is to create an infinitely scalable blockchain infrastructure where developers can build and scale trustless applications. Web2 is described as "the internet of information," primarily focused on data and information sharing, while Web3 is seen as "the internet of value," emphasizing the creation and exchange of value in a decentralized environment.

Although Polygon 2.0 allows for the addition of infinite chains and scalability, its liquidity is still settled through Ethereum's settlement layer, allowing multiple chains to run in parallel, but all transactions and liquidity will be settled on Ethereum.

Nailwal reviewed the development history of Polygon's technology. Polygon initially started with early scalability solutions like Plasma, then explored another scalability method called State channels, before moving to more advanced scalability solutions like State channels, ultimately deciding to adopt ZK technology.

Nailwal explained that ZK technology allows you to prove the computations you have done by providing a proof of constant size, without needing to provide all transaction data. The computational effort required for verification remains the same each time, making ZK technology highly efficient and scalable.

Nailwal and many researchers in the industry believe that ZK is the ultimate solution for providing scalability and security for blockchain and decentralized systems, while optimistic rollups are merely a short-term solution.

Nailwal explained that optimistic rollups operate on the assumption that all transactions on the chain are correct unless someone disputes them. This approach is technically relatively simple but also brings challenges. For instance, when users want to withdraw funds from the rollup chain to the main chain, they must wait for a long withdrawal period of seven days, during which anyone can check the transactions on the chain and raise disputes if any wrongdoing is found.

The core of optimistic rollups is to perform computations in an off-chain environment, allowing for more transactions and operations compared to the main chain to enhance scalability. Although computations are done off-chain, all transaction data and proofs of state transitions must be submitted to the main chain, ensuring the correctness and transparency of off-chain computations.

Polygon's Vision for a Multi-Chain Future

Nailwal described a future where tens of thousands of chains operate within the same system, utilizing different technologies and structures, including Layer 1, validiums, and rollups. This multi-chain structure will provide greater flexibility and choice for developers and users, allowing them to select the most suitable chain based on their needs.

Nailwal explained the main differences between validiums and rollups. Rollups are those that put their data back on the main chain (like Ethereum), while validiums keep their data off-chain. Both methods have their advantages and limitations, but the key is that they can interoperate within the same ecosystem.

Nailwal emphasized that while we often discuss the decentralized nature of blockchains, the true goal is to achieve trustless computation. Users and developers can trust the computational results of the system without needing to trust any intermediary entities or third parties. In this environment, decentralization is merely a means to achieve trustless computation, not the ultimate goal.

Nailwal mentioned that different chains (like Bitcoin and Ethereum) provide solutions for different trustless computations. For example, Bitcoin offers a trustless payment solution, while Ethereum allows users to execute any type of general-purpose program.

Nailwal believes that any platform providing trustless computation is a competitor to one another. This includes ZK, optimistic rollups, and potentially other emerging technologies. He emphasized that the goal is to provide trustless computation for those looking to build in DeFi, gaming, or other fields.

For startups, Nailwal advises them to choose the most suitable chain based on their needs. If they are building in DeFi, they should select a chain with more liquidity; if they are building games, they should choose a chain with a larger gaming community.

Nailwal discussed that to support a multi-chain environment, the architecture of Polygon 2.0 will support validiums, rollups, and other potential chains, such as Cosmos, which can all interoperate within a unified framework.

Polygon will shift from a fixed supply of 10 billion to an inflationary model, increasing by 1% annually, to incentivize validators to participate and continue funding the community. Additionally, to further develop the ecosystem, 1% of the treasury has been reserved for the next 5 to 10 years, which can be used for ecosystem growth.

The Three Pillars of Polygon's Governance

Nailwal elaborated on Polygon's governance structure:

Protocol governance involves decision-making regarding core protocol and client development. Unlike Ethereum and Bitcoin, the core protocol and client development of Polygon are not governed by the community. For core technical decisions, Polygon does not rely solely on token holders or community votes.

Nailwal believes that the governance models of Ethereum and Bitcoin are very successful, especially in handling technical details and core development decisions. This model allows technical teams to make decisions without excessive external interference, ensuring the stability and security of the protocol.

System smart contract governance involves the governance of smart contracts running on the Polygon network. This governance model allows the community to conduct broader reviews and decisions on smart contracts, ensuring transparency and fairness. Smart contracts are core components of blockchain networks, and their behavior and functionality must be trusted and supported by the community.

Community financial governance involves the management and allocation of community funds in the Polygon ecosystem. Community members can vote on how to use and allocate community funds, ensuring transparency and fair use of funds. Proper and fair management of community funds is crucial for the continued development and expansion of the Polygon ecosystem.

Nailwal pointed out that although Polygon has achieved significant growth in the NFT and DeFi sectors in recent years, it still faces fierce competition from other blockchain projects.

Nailwal mentioned that a major challenge facing Polygon is the narrative formed within the community. He believes that despite Polygon's success in technology and practical applications, it still faces competition from other more influential blockchain projects in terms of narrative formation.

Polygon's Business Model

Nailwal emphasized that Polygon is a protocol, not a company. Polygon Labs operates as a non-profit organization and does not generate profits.

Nailwal introduced the core function of the Polygon protocol, which is to provide trustless computing services for third-party developers, allowing them to perform operations on the Polygon network without worrying about interference or wrongdoing from intermediaries.

When developers perform operations on the Polygon network, they need to pay transaction fees. These fees are intended to compensate the validators who maintain and protect the network. Validators are key participants in the network, ensuring its security and integrity by verifying and confirming transactions.

Nailwal explained that validators need to stake or "bond" tokens to participate in the network and earn transaction fees, and the amount of staked tokens determines the proportion of transaction fees that validators receive from the network.

Tokens are not just a way for validators to earn transaction fees. They also provide incentives for validators to act with integrity and honesty, as their staked tokens may be penalized or forfeited if they perform poorly or act maliciously.

Nailwal expressed his appreciation for traditional business models, especially those based on real capital and revenue. He believes that these models are more stable and reliable compared to the speculative nature of the crypto space.

Nailwal mentioned that although they strive to build a decentralized ecosystem in the crypto space, most community members remain interested in speculation rather than genuine value creation. He believes that if five years from now, the crypto space is still primarily focused on infrastructure rather than applications, it will be a failure.