PrimeXBT Analyst Kim Chua: Polygon (MATIC) Undervalued, Should Be Trading Near $3.00 Now

Performance of altcoins have been on fire recently, with many taking turns to rise significantly on the back of milestones achieved, development updates, or on an increase in users. While many coins such as ADA, SOL, XRP, DOGE have made headlines due to their phenomenal price increases, one old darling seems to be lagging behind. But ought to be catching up in an explosive run soon once investors realise how undervalued it is. This token is MATIC coin, the native token of Layer-2 protocol, Polygon Network. 

Back in its heyday in May, MATIC coin rocketed to an ATH of $2.80 after famous investor Mark Cuban said he had bought MATIC as an investment on the back of its low transaction cost, rising Total Value-locked (TVL), and a great natural network effect made possible by leveraging on ETH, the most used smart contract blockchain. 

Despite Polygon’s TVL having fallen from its height due to the market-wide correction from May to July 2021, its valuation seems to have over-compensated for this when compared with its peers in the smart contracts category. 

While TVL may not necessarily be the best metric to determine the value of a network, it nonetheless is one of the most widely-used gauges of adoption and sentiment currently. 

Even though the MATIC coin price has recovered lately due to positive news flow, Polygon is still one of the most undervalued protocols compared with its other smart contract category peers. 

Polygon crypto suffers from low valuation multiple

According to TVL data from DeFi Llama, the current TVL at Polygon crypto is around $5.3 billion, while its market cap is around $10 billion, giving it a less than 2x valuation multiple. Other protocols in the same category are trading at much higher multiples. 

To illustrate, consider ETH and Binance Smart Chain, the two most frequently used smart contract protocols. ETH has a TVL of $113 billion and is valued at around $380 billion on a 3.4x multiple, while Binance Smart Chain has TVL of $18 billion and trades at around $77 billion on a 4.3x multiple. Other newer and smaller protocols have even higher TVL-valuation multiples and thus will not be included in this comparison. 

Hence, conservatively speaking, if we were to take ETH’s valuation multiple as a guide, Polygon ought to be valued at around 3.4x TVL, which will give it a $180 billion valuation. With a circulating supply of 6.46 billion MATIC, this would translate into a price of around $2.78 for each MATIC token. Following Binance Smart Chain’s 4.3x multiple would translate into a price of $3.53 per MATIC. 

In other words, allowing MATIC to reach its peers, implies that the current fair value for MATIC could be at least $2.78 – more than 90% upside from where it is trading currently. This makes MATIC look very undervalued and I think it is a fantastic candidate due for a catch-up play. 

While some may argue that the TVL growth for MATIC has been stagnant for the past two months while that of other protocols have seen sharp increases, the key thing to note is that despite not growing at the speed of other newer protocols, MATIC has not seen an out-of-the-norm fall in its TVL, with it still remaining as the protocol with the third-highest TVL, behind only ETH and Binance Smart Chain, with TVL hovering between $4.5 billion and $6.5 billion consistently. The price of MATIC will need to reflect this position eventually.

A hive of value-adding activities to boost Matic Price

Furthermore, there is a hive of value accretive activities taking place within the MATIC ecosystem, with the Polygon team busy lining up collaborations, tie-ups, and even mergers. Barely just two weeks ago, the team announced the first-ever token swap deal, buying up competitor Hermez Network in a $250 million deal. 

The positive news does not just stop there as another exciting development was revealed on Thursday, with the team unveiling that it will utilise $100 million from its DeFiForAll Fund that was launched in April to build a decentralized autonomous organization (DAO) to encourage DeFi interoperability and adoption. Several big names in the DeFi sector have been roped in to establish this together. They include blockchain oracle Chainlink, DeFi lending platform Aave, and popular DEXs like SushiSwap and QuickSwap, all of which are either currently running on or are existing partners with Polygon. 

How to attract 100 million users into MATIC’s ecosystem

The team believes this new initiative can unite the currently disparate DeFi platforms via the offering of shared services to create connections between DeFi platforms, build on-ramps to crypto wallets and institutions, and a lot more. Ultimately, the aim of this project is to attract 100 million users into MATIC’s ecosystem. It will also allow the MATIC community to have a say in its ongoing DeFi development, which will definitely accelerate adoption further and put the TVL on Polygon back on its previous rocketing trajectory in time to come.

With a new DAO in place, a new governance token will be forthcoming and MATIC holders will be very pleased to learn that the DAO will be distributing its governance token to MATIC holders via an airdrop in the near future. Although details have yet to be finalised, this gives market participants a very compelling reason to be bullish on MATIC coin and hodl it for the airdrop, which is one reason why the price of MATIC has been rising over the last several days, breaking out of the inverted head and shoulders bottom formation neckline at $1.50 and thereafter, sending its price even higher. 

Despite having risen quite significantly over the past few days, the price of MATIC coin is still undervalued according to my peer-to-peer relative value comparison, and I foresee it to trend towards its fair value of $2.78 soon, which also happens to be its ATH. With positive fundamental developments like the new DAO (and especially the airdrop) as an added catalyst, I wouldn’t be surprised to see MATIC surpass $2.78 in the near future should the current positive sentiment in the market continue. Even a price of $3.53 per token would only put MATIC on par with its peers in terms of valuation, which I feel the Polygon Network rightfully deserves, not even accounting for the extra value-add that the new DAO and its airdrop would provide. Thus, in my humble opinion, MATIC could even trade higher than $3.53 once the details of the DAO are finalized and announced in due course.