Ethereum is the home of DeFi because it gives developers a method to create smart contracts and various applications. That said, in recent times, Ethereum has suffered from scalability issues.

Developers must usually pay high gas fees or wait longer to settle smaller transactions. This makes micro-payments impossible.

On the other hand, developers have begun developing second-layer blockchains that utilize the security of Ethereum but have faster transaction speeds and low fees.

Platforms like the best crypto casinos for crypto gambling use the bitcoin lightning network while others use Polygon.

Here is a guide on the Polygon network and how to receive MATIC staking rewards to earn a passive income.

What Is Matic?

Ethereum’s popularity has led to higher gas prices which become more than the actual transaction value. Therefore, small-scale developers and start-ups cannot sustain their products on Ethereum. 

Polygon (MATIC Network) developers created its network to mitigate high gas prices. It introduced a PoS (Proof-of-Stake) consensus mechanism that bridges with Ethereum. Block producers in this mechanism only need to submit a bundle of transactions to Ethereum at various checkpoints. This significantly lowered transactions fees and sped up block settlement times.

Furthermore, the PoS mechanism requires Polygon users to stake their MATIC, the blockchain’s native token, to receive voting rights for network governance and to become validators on the network. Validators receive MATIC staking rewards depending on their stake in the network.

Lastly, the Polygon network has fostered various partnerships with DeFi platforms. These partnerships allow MATIC stakers to receive more rewards, and access more financial services using their MATIC. These include NFT minting and marketplaces.

Polygon Network In 2021

Since its inception in 2019, the Polygon network has gained a good reputation as a highly scalable Dapp development platform.

Accordingly, many NFT projects began using Polygon to launch their marketplaces and NFT ecosystems. In 2021, NFT projects like Avegotchi and Valuables used the Polygon network to mint NFTs and made them available through marketplaces in early 2021.

Furthermore, in March, the Polygon Network reached over 200 000 unique PoS addresses. Daily transactions also exceeded 300 000.

Polygon Network 2021
Polygon Network 2021

Moreover, NFT marketplaces began integration with the Polygon network. This includes OpenSea, the biggest NFT marketplace. DraftKings, another major NFT platform, planned to build an NFT marketplace using the network.

Additionally, Polygon allowed metaverse projects to launch their platforms. These include Decentraland and Sandbox. Polygon’s scalability allowed these projects to enable mass NFT minting.

Polygon has also launched Uniswap on the network. This brings multiple coin swaps and staking pools for MATIC staking rewards.

Finally, the Polygon network has grown to have over 3000 dApps in development since October 2021. The network has also exceeded 100 million unique addresses using PoS.

How Does MATIC Work?

Architecture

ERC-20 token holders can deposit their crypto assets into an Ethereum smart contract. Next, once the crypto asset appears on the Polygon Chain, they can transfer it between multiple blockchains on the Polygon network. Users can then easily withdraw their tokens using the Root contract.

Furthermore, Polygon has four layers. The first layer, Ethereum, is a set of smart contracts on the Ethereum main chain that performs staking, checkpointing, dispute resolution, and communication between Ethereum and Polygon chain functionality.

The second layer, security, is optional for developers to receive security as a service through Polygon validators or Ethereum miners. It manages validators and chain validation on the network.

The third layer, Polygon Networks, houses the various blockchains connected to the network. They do not conform to any centralization and have sovereignty over native consensus, block settlement, and transactions.

The fourth layer, Execution, is where various blockchains execute their transactions based on pre-agreed protocols. 

Types Of Users

Each Polygon network has various users that contribute to its operation. The first is the end-user. They use the network’s products and services. They transact to receive MATIC staking rewards, swap their tokens on Uniswap, or take advantage of Polygon’s low transaction fees and fast throughput to mint NFTs or sell them.

Types of users of Polygon
Types of users of Polygon

Next, there are the developers. They create or scale their applications using the Polygon network. End-users interact with these applications on the network.

Then, there are stakers. These users stake their MATIC to receive validator responsibilities or delegate their stake to a validator. They choose block producers to send bundles of transactions to the main Ethereum chain and create blocks on the relevant sidechains.

Lastly, block producers ensure that transactions reach the Ethereum layer and communicate with the sidechains using checkpoints in a PoS consensus mechanism.

Consensus Mechanism (Proof-of-Stake)

Polygon’s proof of stake consensus mechanism occurs on two layers. The first is the checkpointing layer. Here any MATIC holder can become a part of the network. They only need to stake their MATIC in the root contract on the Ethereum mainchain.

The second layer consists of the block producer. Here validators vote for a proposer. This user will submit the bundle of transactions on a sidechain to the Ethereum mainchain. The network keeps block producers at a minimum to increase block settlement time.

Moreover, a block producer validates all the transactions after the previous checkpoint and creates a Merkle tree of block hashes. Stakers need to sign these block hashes to verify the bundle of transactions. 

The network needs a consensus from 2/3 of the stakers. Once they achieve consensus on the Ethereum main chain, the network creates a checkpoint.

Finally, block producers need a significant MATIC stake to stand as nominees. They also incur all the gas fees for committing the bundle of transactions to the Ethereum mainchain. On the other hand, they receive compensation with MATIC staking rewards bonuses.

Validators

Validators represent a capped pool of 100 stakers who validate and create blocks. They also vote on block producers for every checkpoint.

Furthermore, the Polygon network has identified instances where validators no longer perform their functions on the network. This could be due to significant downtime and negligence. So currently, validators receive punishment through a slashing process.

Slashing

Validators need to stake some MATIC to receive MATIC staking rewards. They need to run a full node of the network and have high uptime.

Furthermore, if a validator double signs a checkpoint, the network slashes their MATIC stake by 2-5%. This includes all delegators connected to the validator.

Consequently, validators that have significant downtime and do not sign checkpoints will receive slashing punishment with increasing severity. They could surrender all their stake due to slashing.

How To Earn MATIC Staking Rewards

 Earning staking rewards includes becoming a validator on the Polygon network, but this is mainly reserved for stakers with significant holdings and a favorable ETH balance.

Accordingly, most users can become delegators on the network. Here they delegate their MATIC stake to one of the 100 validators on the network.

Choosing a MATIC validator
Choosing a MATIC validator

Moreover, the Polygon team has allocated 12% of MATIC’s 10 billion token supply for MATIC staking rewards. The team has also decided to scale down reward rates every year to phase the network into validators receiving rewards with transaction fees to make the network self-sufficient.

In the first year, validators will receive 20% staking rewards, 12% in the second year, and 9% in the third year. The network is currently in its third year, and when it reaches a staked amount of 2 890 642 855, the staking reward will become 9%. The total stake is currently 2,569,349,696 MATIC.

Select A Wallet

To become a delegator on the Polygon network, a user needs to have a compatible wallet. Here are a few options users can choose from.

Firstly, a user can create a MetaMask wallet. It is compatible with all ERC-20 tokens, and it integrates with the Polygon network. This web wallet only requires a web browser, but users can only use it online. 

Secondly, Polygon also has the Hermez mobile wallet. Users can link their existing mobile wallet address (WalletConnect) to the app and make transfers between layer 1 (ETH) and layer 2 (MATIC) cryptocurrencies. Users can also make global payments using their crypto in various currencies.

Lastly, Polygon supports Coinbase wallet. It supports over 4000 crypto assets and allows users to store their NFTs. It also enables users to participate in DeFi services from the wallet interface. This is an excellent option for a user that wants to manage a host of DeFi products.

Choose A Validator

There is currently a limit of 100 Polygon validators. Choosing a validator requires visiting the Polygon Staking page and looking at statistics related to validator staking history.

Firstly, a user needs to see which percentage of checkpoints a validator has signed. Good validators have a checkpoint sign percentage of 100%. This means they have signed every checkpoint since becoming validators. They have high uptime and are less risky when it comes to incurring penalties like slashing.

Next, users need to consider the commission a validator charge for allowing delegators. There is no limit on the commission a validator can charge. With a commission of 5%, a validator receives that portion of a delegator’s reward for providing validator services. Fortunately, some validators charge 0% commission to attract more delegators. 

Lastly, users need to conduct more research on a validator by visiting their website or looking at more in-depth statistics using the Polygon Explorer.

Calculating Profitable MATIC Staking Rewards

Receiving MATIC rewards through staking requires connecting a compatible wallet to a desired staking platform. A user also needs to ensure that they have MATIC in their wallet to stake. Staking has a minimum of 2 MATIC. However, other platforms may have different minimums. Users also need to pay gas fees when swapping or to withdraw their MATIC. This requires an ETH balance between $20 and $50.

Interest Rate

Any potential staker needs to check the interest rate they agree to when staking their MATIC. Platforms express this rate as an APY (Annual Percentage Yield). This represents the return a staker might receive over a year on their staked MATIC.

Reputation

Finally, a user needs to consider which platform has a good reputation. Not all platforms have benevolent intentions, and some platforms can lock up crypto assets, take custody of them, and not pay out any rewards. Find a reputable platform or choose the official Polygon staking platform.

MATIC Staking Platforms

MATIC holders do not need to use the Polygon staking platform to receive MATIC staking rewards. There are several other platforms that offer competitive interest rates on MATIC staking.

Firstly, users can use the Celsius network. It is a crypto lending and borrowing platform that rewards users for locking up their crypto assets. They receive interest in it. If MATIC holders stake their holdings, they will receive up to 11.50% APY. Stakers usually receive 9.10%. Users on the Celsius network do not need to restake their rewards. They receive compound interest by holding their MATIC on the network.

Secondly, Binance allows MATIC holders to deposit their holdings at an interest rate of 12.2%. It requires a lockup period of 6 months. It also offers a fee reduction of up to 20%. If MATIC holders do not want to lock up their holdings, they can opt for flexible staking at 6% APY.

Thirdly, Bitfinex has recently made MATIC staking available. MATIC stakers using the platform can receive up to 41.7% APY. They receive weekly MATIC staking rewards. The service is not available to US residents.

Lastly, PlotX, a GameFi platform, has partnered with Polygon. It allows users to initiate transactions for as low as $1 without paying any gas fees. They have also launched a staking program where users can receive MATIC and bPLOT rewards. It has an APY of up to 52%.

Final Thoughts

Polygon allows interoperability between many DeFi services and blockchains. It enables users to participate in crypto services without high fees and slow settlement times.

It gives MATIC holders many avenues to earn staking rewards. To receive profitable rewards, a staker needs to choose a good validator or choose a third-party platform that offers a competitive interest rate and has a good reputation.