Sequoia-Led Group Buys Polygon’s Crypto Token for $450 Million

Vlad Savov | 2 years ago

(Bloomberg) -- Polygon, the operator of an eponymous protocol used by developers to make Ethereum transactions quicker and cheaper, raised $450 million by selling its Matic crypto token to investors led by Sequoia Capital India.

SoftBank Group Corp.’s Vision Fund 2, Mike Novogratz’s Galaxy Digital, Tiger Global, Alexis Ohanian and Animoca Brands Corp. were among more than 40 investors participating in the funding. Polygon’s token, capped at 10 billion units, is the closest analog to holding equity in the protocol. Matic traded at a high of $1.94 on Tuesday, according to data from CoinGecko.

Polygon is one of a number of so-called Layer 2 operators, offering tools for developers who want to create decentralized apps (or dapps) and tackling the issue of network congestion, which is a growing problem on Ethereum as its popularity rises. The cost of gas fees, charged to execute any minting or trading on Ethereum, has skyrocketed in recent times, increasing interest in Layer 2 protocols that work by taking transactions from Ethereum, compressing them and posting them back to the original chain at a fraction of the time and cost. Polygon is competing with rivals such as Arbitrum, Loopring, Optimism and StarkWare to serve that demand. It takes a small protocol fee each time it’s used.

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Polygon says its protocol now has 7,000 dapps, more than 130 million unique users, over 3 million daily transactions and in excess of 3.4 billion transactions since the company’s founding in 2017. It acquired another startup, Predicate Labs, in December as part of a $1 billion push into accelerating development of faster cryptography solutions that would allow it to accommodate greater scale.

NBA star Steph Curry minted his first non-fungible token -- digital basketball shoes commemorating his 3-point record -- on the Polygon network in December. Polygon also powered luxury brand Dolce & Gabbana’s NFT auction last year. 

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“One of the reasons for this funding was to get institutional visibility in the U.S.,” co-founder Sandeep Nailwal said in an interview, citing the participation of Third Point and Accel. The company also wanted more exposure among gaming-focused funds, such as Animoca and Makers Fund. It has an annual run rate of $100 million of protocol fees, which holders of the Matic token can benefit from if they run a validator node for transactions. The funding includes a three-year lockup, with a third of tokens freed to be traded after each year. 

The new money will be used to provide “burn rate for three to five years” for six project teams, ranging across India, Serbia, Switzerland, the U.K. and the U.S. Polygon is budgeting $10 million for each per year and committing $100 million of the new raise to an ecosystem fund, to be spent on helping developers building on the protocol, according to Nailwal.

As more dapps are developed and applications like NFTs and decentralized finance grow, Polygon wants to serve as the toolkit for creators, much as Amazon Web Services provides back-end support for websites today, Nailwal said.

“There’s a digital Mars being created and we are building the infrastructure of that digital Mars,” he said.

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