The Mimo Protocol on Polygon (MATIC) — Another Step towards a Multi-chain dApp Ecosystem
Since the recent surge in BTC prices during 2021 and the maddening rush of new platforms and ventures in blockchain, two of the biggest hurdles that blockchain developers have been talking about are scalability and interchain data sharing.
Scalability has predominantly been on the minds of developers that work primarily on the Ethereum blockchain because of the burgeoning demand the Ethereum network has faced and the ever plumping of transaction cost in gas that has hit every trader’s bottom line.
Whether they are working in DeFi, gaming, or NFT memorabilia, traders in every sector have been looking for the quickest way to skirt both the transaction processing delays as well as the skyrocketing fees of the Ethereum network.
Either through centralized off-chain solutions like Binance Smart chain or via creating their blockchain networks, like Dapper Labs and the creation of Flow Blockchain, developers are struggling to find new and innovative ways to adapt their model of scalability and inter-chain communication to the Ethereum network’s scaling and interoperability challenges.
Enter Polygon, an ambitious project Founded in 2017 by Jayanti Kanani and Sandeep Nailwal. Polygon is an Indian Matic Network and a secondary layer to Ethereum blockchain. Polygon was envisioned as a new way for any developer to create a dedicated blockchain network combining all of the best features from standalone blockchains (flexibility, sovereignty, and scalability) with the best of Ethereum (security, developer experience, interoperability).
Polygon has already captured a respectable following and a very desirable niche among the top 15 cryptocurrencies; however, its inventors have lofty aspirations to make it into the third-largest crypto project after Bitcoin and Ethereum. Reports suggest that over the last year, the coin has increased by over 10,000 percent. And by over 125 percent in only one month. The Matic token has a current circulating supply of 6,410,735,794 coins in circulation with a fixed total of 10,000,000,000 tokens.
What makes Polygon unique from its competition?
Polygon represents both a protocol and a framework for constructing and connecting Ethereum-compatible blockchain networks, bringing together scalable Ethereum solutions to support a multi-chain Ethereum ecosystem.
For a better understanding of Polygon, let us further dive into the discussion entailing the features and offerings of the Polygon and the future scope of the network.
If we analyze the Ethereum blockchain, it is a preferred blockchain network but has limitations such as Low Throughput, Poor UX (gas, delayed PoW finality), and No sovereignty (shared throughput/clogging risk, tech stack not customizable, governance dependence).
Today Ethereum fees are as high as $250+. In some manner, the majority of blockchains run into scaling difficulties. Transactions are slower, and as the demand for transaction processing grows, each transaction becomes more expensive.
Bitcoin, which has established itself as a peer-to-peer payment system, can only process 4.5 transactions per second.
As a solution, through a specific application programming interface (API) and software development kit (SDK) integration, the Polygon crypto platform allows dApps to speed up transactions, enabling near-instant payment settlement.
Polygon is incredibly adaptable, with scalability at its heart. Polygon’s interoperable communications protocol and specialized framework provide new options to make use of Ethereum’s well-known ecosystem. And previously, many projects have used Polygon, including EasyFi (a DeFi platform), Polymarket (a known prediction market), and Aavegotchi (an NFT collection).
Co-founder of the Polygon, Sandeep, shared that the team intends to spend on the expansion. Furthermore, the creators believe Ethereum to be the ultimate, fundamental settlement layer of this Web3 internet.
By incorporating the collateralized algorithmically Euro Pegged Parallel Protocol stablecoin (PAR), team Polygon can initiate a successful decentralized crypto finance future.
How is PAR different from its competition?
PAR is the first EUR decentralized stablecoin. So far, there is no decentralized algorithmically pegged EUR stablecoin, presenting a tremendous potential to capture the whole EUR stablecoin market.
Furthermore, stablecoins are seen as a safe haven from price volatility, allowing users to maintain the benefits of crypto-assets while minimizing their exposure to price swings. Besides, a proportion of the fees collected from borrowers are used to incentivize liquidity in a handful of PAR Automated Market Maker (AMM) pools. This incentive will attract more liquidity to PAR pools, facilitating low-slippage trades between PAR and other crypto-assets, given the deeper market depth.
Why is Mimo protocol good for a multi-chain environment?
The Mimo Protocol is a decentralized stablecoin issuance protocol on the Ethereum blockchain. Besides, they are non-custodial, collateral-backed, and fully redeemable synthetic assets algorithmically pegged to the EUR fiat currency.
The Mimo Protocol is ideal for a multi-chain environment, and it allows users to Mint Euro-Pegged Tokens without spending their digital assets. Customers can lock up their assets in a collateral virtual vault, as opposed to sending them. This feature makes PAR the first fully decentralized stable token of its kind. Furthermore, the users can benefit from the market appreciation of the digital assets. Users retain complete control over their locked-up digital assets using MiMo DeFi as long as the digital assets are of significant value.
They may continue to benefit from the market price increase of their digital assets while also minting PAR tokens and use them in the DeFi marketplace. Additionally, the users can generate income through staking in a liquidity pool. Aside from the chance to take advantage of the attractive 2% loan rate given on the MiMo DeFi platform, users may also profit from high-yield returns when they deposit their PAR tokens in liquidity mining pools.
Compared with the Polygon, Polygon is a Matic-Network with a multi-chain environment, made on a four-layer system, the Ethereum layer, security layer, Polygon network layers, and execution layer. The Ethereum layer denotes merely a collection of smart contracts built atop Ethereum.
These smart contracts manage transactions, staking, and communication between Ethereum and the multiple Polygon chains. The security layer operates alongside Ethereum and provides a “validators as a service” function, allowing chains to gain an additional layer of security.
Furthermore, the two mandatory layers, the first is the Polygon networks layer, which is the ecosystem of Polygon-based blockchain networks. Each of them has its community and is in charge of achieving local consensus and generating blocks. The second layer is the Execution layer, which is Polygon’s Ethereum Virtual Machine (EVM) implementation for smart contract execution.
Why is Polygon (MATIC) the best multi-chain environment layer 2 to use?
Layer 2 scaling, also known as second layer scaling, refers to methods that aid in extending the capabilities of the main chain by processing transactions off-chain (off Layer 1). The two primary improvements layer two can contribute are those of transaction speed and transaction throughput. Atop that, Layer 2 solutions can significantly reduce gas fees.
Polygon is an Ethereum-compatible layer two (L2) scaling solution that provides quick, cheap, and secure off-chain transactions for payments and general interactions with off-chain smart contracts. Furthermore, Polygon technology is materialized through two major components: The polygon framework and the Polygon protocol. It offers the architecture that allows developers to build unique, application-specific chains that use Ethereum security like the Cosmos-and-spoke paradigm. It provides an interoperable layer that connects several projects and scaling solutions, such as zk-rollups, optimistic-rollups, and sidechains.
Because Polygon is a distinct chain, it must be protected by a separate proof-of-stake consensus method in which validators stake MATIC. MATIC, on the other hand, is invested in smart contracts on the Ethereum main chain.
Polygon communicates with Ethereum through a bridge that employs a lock and mint method. Users deposit money into the bridge, which secures them in an Ethereum smart contract and mints an equivalent amount on Polygon. The bridge (and payments) are protected by a 5/8 multi-signature method, making it far more centralized than the Ethereum mainchain.
Hence, any project may quickly create a specialized blockchain network using a polygon, which combines the advantages of standalone blockchains (sovereignty, scalability, and flexibility) with Ethereum (security, interoperability, and developer experience). Furthermore, these blockchains are compatible with all existing Ethereum tools (Metamask, MyCrypto, Remix, and so on) and can communicate with one another.
Subsequently, Polygon supports two Ethereum-compatible blockchain networks: standalone networks and ‘security as a service’ networks. The strong network guards against fraud, maintaining a high level of security without jeopardizing independence and flexibility.
Lastly, Polygon’s Layer-2 sidechain scaling solution promises to improve the speed and performance of blockchain-based gaming. Due to slow transaction speeds and significant network latency, blockchain gaming falls behind traditional PC and console gaming systems.
Developers and players will be able to design and play games more efficiently thanks to the collaboration of Polygon’s Commit Chain scaling technology and the Ethereum network. Polygon’s ability to assist in the growth of the blockchain gaming industry could not come at a better time, as non-fungible tokens (NFTs) and NFT marketplaces are driving the popularity of the blockchain and crypto industries in general, with many gamers buying, selling, and trading various types of in-game NFTs.
Summing the discussion, Polygon is a Layer-2 scaling solution designed to assist the Ethereum platform in achieving broad adoption. It meets a wide range of developer demands by offering tools for building scalable decentralized apps (dApps) that prioritize performance, user experience (UX), and security. Polygon does this partly because of the Proof-of-Stake (PoS) Commit Chain’s underlying technological design and its More Viable Plasma (MoreVP) L2 scalability solution. Polygon’s Proof-of-Stake blockchain acts as a Commit Chain to the Ethereum mainchain, drawing over 80 Ethereum dApps to its platform that transact without the network congestion that plagues Ethereum and other Proof-of-Work blockchains.
What are the possibilities for the PAR and MIMO tokens once they get adopted and used in a multi-chain environment, such as Polygon?
Once the PAR and MIMO tokens are adopted, users can utilize it to serve different purposes such as Governance, Staking, and Liquidity Mining. Polygon users can use the PAR Token as a stable coin for payments on the Ethereum layer. MIMO holders will have complete control over the multi-chain protocol, like managing exclusive events, such as protocol upgrades and fixes.
Being a Euro pegged stablecoin, the PAR token can be utilized as the standard conversion medium when transferring value to other chains. Polygon users can use PAR to convert the value of a currency in one chain and transmit the value across to another chain without any loss in conversion. This way, the PAR token can not only be a stable value across various chains but can become a market standard for stable predictable value.
Moreover, developers and ecosystem developers can use PAR Tokens to build dApps on Polygon. Additionally, PAR Wallets can be made for users to secure and manage their crypto finance. The wallet will connect different dApps, facilitating the PAR holders to stake and hold other ERC-20 tokens. Like DOT, the PAR tokens will ease consensus mechanisms that underpin Polygon. And lastly, it will serve the purpose of bonding by tying up the PAR token with new parachains.
Why is an algorithmically Euro stable token necessary for a DeFi multi-chain environment such as Polygon?
Data from the past suggests the inability of bitcoin to serve the purposes of peer-to-peer payments because it has high price volatility. Subsequently, the majority of the cryptocurrencies except stablecoin are subject to price volatility. Thus, to provide an alternative stable cryptocurrency alternative, Tether was launched. The success of Tether further encouraged the existence of multiple stablecoins, and by 2017, 25 different stablecoins were established on the Ethereum blockchain.
Collateralized and non-collateralized stablecoins are the two types of stablecoins. Stablecoins that are collateralized have an asset behind them. The dependency on centralized institutions to preserve monetary reserves is eliminated by pegging stablecoins to cryptocurrencies. Meanwhile, non-collateralized stablecoins use a mix of algorithmic tools and simple, predictable currency supply regulations to ensure price stability. The PAR token belongs to this last category.
Likewise, an Euro stablecoin is necessary for a DeFi multi-chain ecosystem, as it can support lending and borrowing, with stablecoin framework on top. In decentralized applications, such as Polygon, the service is supplied via data replication over several computers, which are not controlled by any centralized authority.
Stablecoins have been suggested as a way to help DApps gain traction. Financial interactions/transactions in the Ethereum DApp ecosystem can be facilitated using an on-chain stablecoin, pegged to the Euro. This provision opens up a host of opportunities for providing services without intermediaries, like swapping the stablecoin through smart contracts.
What are the necessary steps that Mimo and Polygon should undertake to (technically) join forces for a multichain DeFi environment?
Multichain solutions such as Polkadot and Cosmos are primarily concerned about their ecosystem and the ability to communicate with off-chains via their Relay service. However, there is still a need for a dedicated relay service that can both communicate between chains and simultaneously do value conversion.
Similar to how Chainlink provides information gathering and Oracle services on the Ethereum network from off-chain sources, Mimo and Polygon can also serve a similar role as an open-to-everyone off-chain relay service.
A sample of this type of implementation could be a situation where both the stablecoin value exchange parties belong to various blockchains. As most of the blockchains are separate from each other, there is little to no interoperability between them.
To allow payment between tokens from two different blockchains, we have to go through a centralized party that does the exchange between the tokens. For instance, if we want to convert our token from BTC to XRP, we would have to use centralized services, like a cryptocurrency exchange that has accounts on both chains. Centralized services are very effective in this scenario, but some tradeoffs have to be made like every solution.
When using centralized services or exchanges for such a conversion, there is a small commission fee that the provider deducts. The problem with centralized services is that they are a single point of failure, but they have a history of being collusion-prone and at times attack-prone when compared with decentralized services.
The fundamental reason Bitcoin launched a peer-to-peer payment was to move away from the centralization nature of payment systems. If we insist on relying on centralized services with outsourced custody of our funds to institutions, the decentralized application of blockchain to payment applications will be of little use.
There is a clear need for a P2P stablecoin exchange system that allows the participation of various cryptocurrencies belonging to different blockchains and also facilitates conversion between them without centralized entities. This is a unique opportunity for Mimo and Polygon to collaborate not only as off-chain relay services to transfer value from one chain to the other but also as a decentralized exchange service.
We would prefer the proposed approach to be a system that uses blockchain interoperability services to exchange and transfer value from one stablecoin to another. The exchange is needed because both the sending and receiving parties could have wallets on different blockchains. Interoperability between blockchains must ensure that we have a trustless and decentralized conversion between the stablecoins.
To implement a part of our proposed system, we set up ethereum and cosmos blockchains instances and conduct a transfer between an ethereum stablecoin to a cosmos stablecoin.
In conclusion, Mimo and Polygon can form an excellent alliance for providing both a universal interchange for any off-chain relay functions as well as an exchange source to convert the value from one crypto asset to another before transferring the value from one chain to another.