Polygon’s MATIC And Hermez’s HEZ To Merge Under Acquisition Deal

August 17, 2021 03:30 PM
Crypto Story of the Day

Crypto Story of the Day




The Top 10 was unchanged to marginally lower while Solana (SOL) continues to outperform. BTC and ETH spot volumes remain below their 30-day average.

Crypto Story of the Day

Ethereum scaling protocol and framework Polygon has acquired fellow scaling tech provider Hermez Network. The deal will also involve a merge of the 2 networks’ native tokens.

Polygon, with a team spread across India, Serbia, and Singapore, describes itself as a “protocol and framework for building and connecting Ethereum-compatible blockchain networks.” The Polygon network is essentially a series of proof-of-stake side-chains which utilize the Ethereum network to perform “mission critical [components]” such as finality or settlement for deployed applications. 

Aside from the network protocol, Polygon also offers a “Framework” that facilitates the deployment of new applications and specialized blockchains. Polygon, which offers faster and cheaper transactions in comparison to Ethereum, claimed to have reached about 9 million daily transactions in June, compared to Ethereum’s 1.6 million all-time high daily transactions in May. 

The Hermez Network, based out of Switzerland, provides a layer 2 solution for Ethereum scaling which utilizes zero-knowledge proof (ZK) rollup technology. In broad terms, ZK rollups involve “rolling up” hundreds of off-chain transactions and then post the aggregated transaction data on the Ethereum blockchain. 

In what’s being billed as the first event of its kind, the 2 networks will also merge their tokens, Polygon’s MATIC and Hermez’s HEZ. Under the agreement, users will be able to exchange 1 HEZ token for 3.5 MATIC. Polygon will allow HEZ holders to exchange the token for MATIC via a yet-to-release “swapping contract.” 

The maximum amount that will be committed to the token merger from the Polygon treasury is 250 million MATIC tokens, or roughly USD 250 million “based on the price at the time of reaching the agreement.’” HEZ, which has a current market cap of USD 23 million, added about USD 4 million to its market cap following the merger news. MATIC currently has a market cap of roughly USD 9.8 billion and has seen the metric grow by about USD 800 million since the announcement. 

In 2021, increasing usage of the Ethereum network, mainly via DeFi, has highlighted high transaction fees as an obstacle for the network’s growth. In the context of prohibitively expensive transaction fees, Polygon, along with its suite of scaling products and services, has emerged as a relatively popular solution. 

In a 2020 post arguing for a “rollup-centric” approach to scaling by Vitalik Buterin, the Ethereum founder explained that scaling benefits as a result of a proof-of-stake transition remain “years away.” As such, scaling technologies such as Polygon are positioned to see further attention in the short to medium term as an interim solution to Ethereum’s congestion challenges.

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