Summary:
The Polygon ecosystem, a promoter of multi-chain interoperability, zero-knowledge proof applications, and DeFi and NFT ecosystems, has undergone a difficult time in the past year due to a lack of growth and competition from new public chains such as Solana, Sui, or Base. AAVE, the largest decentralised application on Polygon with over $466 million in deposits in the PoS chain, and Lido, withdrew their lending and staking protocols.
This withdrawal came after “Polygon PoS Cross-chain Liquidity Plan” Pre-PIP improvement proposal was introduced by the Polygon Community. The proposal aimed at generating revenue by leveraging over $1 billion held in stablecoin reserves by deploying idle funds in selected liquidity pools. The AAVE application would have been affected directly by the proposal, even though Lido’s withdrawal was unrelated and had been decided a month earlier.
The Polygon ecosystem underwent a decline and remained stable around $1.3 billion since mid-2022. Despite the lacklustre performance, new technological innovations and an unified blockchain product, AggLayer were introduced. The ecosystem showed poor performance with the drop of the POL tokens from $1.3 at the beginning of 2024, to $0.28, a decrease of over 77 per cent.
It has experienced a recent rebound of about 50%. The core problem for many projects like Polygon in the current market environment was the difficulty of non-disruptive technological innovations to be a major narrative advantage. The crux of the issue has been the lack of compelling narratives and incentives within the Polygon ecosystem causing stagnation and increased competition.
Polygon has been resorting to reward distribution in the form of incentives to attract and retain attention, like the “Borrowing a Chicken to Lay an Egg” proposal, but lacks sufficient cards to retain users. Polygon relies heavily on technological innovations, and the proposed incentives seem to fail to retain the interest and attention of the users which may result in further complications for the ecosystem and its future prospects.
Facing tough competition, the Polygon needs to attract more users by adapting innovative strategies in the market apart from technological development. The challenge is reflected in the present predicament of most public blockchains today. Full Content: The Polygon ecological crisis deepened when AAVE and Lido, its two ecological partners, announced a collective withdrawal one after another.
This sudden withdrawal caused troubles for Polygon’s “Borrowing a Chicken to Lay an Egg” Proposal. While Polygon was once on the rise in the market, its popularity has stalled due to new competitors including Solana, SUI, and Base. Over the past year, key public chain projects like Polygon have not achieved any great breakthroughs.
But AAVE, the most popular decentralized protocol on Polygon, manages more than $466 million in collateral in Polygon PoS. Meanwhile, Lido, the liquidity mining protocol, also announced Polygon’s Lido will be officially deactivated in a few months.
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