Polygon’s MATIC Token Under SEC Spotlight: What Investors Need to Know

The SEC v. Consensys Software Inc. court document was obtained on June 28, 2024, and is part of HackerNoon’s legal PDF series. You can jump to any part of this document here. This part is part 13 of 26.

A. Matic

142. “MATIC” is the native token of the Polygon blockchain. Polygon, originally called the Matic Network and rebranded to Polygon in 2021, is a blockchain platform created in 2017 in Mumbai, India by Jaynti Kanani, Sandeep Nailwal, Anurag Arjun and others. Since Polygon’s founding, the founders of Polygon have been actively involved in Polygon through “Polygon Labs” (“Polygon”), which they established for the “development and growth of Polygon.”

143. According to Polygon’s website (https://polygon.technology/), the Polygon Network is a scaling platform for Ethereum that enables developers to build scalable, user-friendly dApps with low transaction fees by hosting “sidechains” that run in parallel with the Ethereum blockchain, allowing users to process transactions, transfer assets and initiate technology development on Polygon’s less congested sidechain network.

144. Polygon has issued a fixed supply of 10 billion MATIC tokens. MATIC holders can earn additional MATIC by staking MATIC on the Polygon platform and becoming a validator, delegate MATIC to other validators in exchange for a portion of the fees collected from validating transactions, or stake MATIC with other third parties, such as crypto asset platforms that offer staking services.

145. According to MATIC’s first white paper, “Matic Tokens [we]It is expected to provide economic incentives on the Matic network. [now Polygon] … [W]Without the Matic Token, users would have no incentive to expend resources to participate in activities or provide services for the benefit of the entire ecosystem on the Matic Network.”

146. Around 2018, Polygon sold approximately 4% of the total supply of MATIC in two initial sale rounds, raising $165,000 at USD 0.00079 per MATIC and $450,000 at USD 0.00263 per MATIC. In April 2019, Polygon sold a further 19% of the total supply of MATIC to the public on the Binance.com cryptocurrency trading platform at USD 0.00263 per MATIC through a so-called “Initial Exchange Offering” (or “IEO”, essentially an initial offer and sale of cryptocurrency securities on a cryptocurrency trading platform), raising an additional $5 million to fund the development of the network.

147. From the time of its offering, MATIC was offered and sold as an investment contract, i.e. a security.

148. The prices of all MATIC tokens will rise or fall simultaneously.

149. MATIC has been available to buy and sell since at least July 2021 through the brokerage service provided by MetaMask Swaps.

150. The information published by Polygon would induce reasonable investors, including investors who purchased MATIC after October 2020, to view MATIC as an investment. Specifically, MATIC holders would reasonably expect to benefit from Polygon’s efforts toward the growth of the Polygon Protocol, because this growth would increase the demand for and value of MATIC.

151. For example, Polygon publicly announced, including in its white paper, that it would pool investment proceeds through private and public fundraising to develop and grow its business.

152. Additionally, following the IEO, Polygon will be conducting an additional sale of MATIC, publicly stating that it is doing so to raise the capital needed to support the growth of its network. On February 7, 2022, Polygon reported in a blog that it had raised approximately $450 million through a private sale of its native MATIC tokens in a funding round to several prominent venture capital firms. Polygon reported:[w]”This funding will enable the core team to secure Polygon’s lead in paving the way to mass adoption of Web3 applications, which we believe will ultimately result in Ethereum winning out over other blockchains.”

153. Polygon also reported on funding from other high-profile investors.

154. Polygon also stated that it would dedicate approximately 67% of MATIC to supporting the Polygon ecosystem, foundation, and network operations. The remaining 20% ​​of MATIC would be further reserved as compensation to Polygon team members and advisors, to align with investors’ fortunes with regard to MATIC.

155. Additionally, the Polygon blog provides frequent updates on the growth and development of Polygon’s network, including weekly statistics on active wallets and daily transactions prior to December 2022, as well as financial metrics such as daily revenue and total network revenue.

156. Polygon also regularly publishes announcements about when cryptocurrency trading platforms make MATIC available for trading.

157. Polygon explicitly encourages buyers of MATIC to view it as an investment in other ways: For example, in a February 5, 2021 tweet, 14 months after MATIC’s biggest price drop, Nehru compared the token to a professional boxer who came back from a loss to become champion.

158. Also, on November 3, 2022, Nehruwal tweeted, “I will not rest until @0xPolygon takes its well-deserved “top 3″ spot alongside BTC and ETH. No other project even comes close.” In a “fireside chat” with CNBC posted to YouTube on May 24, 2022, Bejelic explained part of “what makes Polygon different” as follows:[w]We work very hard as a team, have a very hands-on approach to every project out there, and work around the clock for adoption. That’s why it’s the most adopted scaling infrastructure platform right now. ” As we move into 2023, Polygon’s founders continued to promote the platform through various social media. For example, on February 21, 2023, Nailwal tweeted and Kanani retweeted: “Polygon has grown exponentially. To continue on this incredible path of growth, we have fleshed out our next 5-year strategy to drive mass adoption of web3 by scaling Ethereum. Our finances remain healthy with over $250 million in outstanding and over 1.9 billion in MATIC.”

159. Since January 2022, Polygon has advertised that it will “burn” MATIC tokens accumulated as fees, implying that the total supply of MATIC will decrease. For example, in January 2022, Polygon announced a blog post titled “Burn, MATIC, Burn!” highlighting a protocol upgrade that would enable the burn. In another blog post on its website around the same time, Polygon explained that “Polygon’s supply of MATIC is fixed at 10 billion, so any reduction in the number of available tokens will have a deflationary effect.” As of March 28, 2023, Polygon has burned approximately 9.6 million MATIC tokens. Advertising this MATIC burn as part of the “deflationary effect” of Polygon’s network has led investors to rationalize that buying MATIC could be profitable, as long as there is a built-in mechanism to reduce the supply and increase the price of MATIC.

160. In a separate whitepaper, Nailwal et al. recently published a revised Polygon protocol in which a new token, POL, will succeed MATIC as the “native token of the Polygon ecosystem.” The whitepaper states, “As the successor to MATIC, POL is envisioned to be a tool to help coordinate and grow the Polygon ecosystem and a primary driver of Polygon’s vision as the value layer of the Internet.”

161. The White Paper presents a model that “simulates key performance indicators of a POL-powered ecosystem.” The model projects a proposed 10-year average price of POL of $5, which would be a significant increase from MATIC’s current price.

About the HackerNoon Legal PDF Series: We bring you the most important technical and insightful public domain legal records.

This court case was retrieved from storage.courtlistener.com on June 28, 2024 and is part of the public domain. Court-produced documents are federal works and are automatically in the public domain under copyright law and can be shared without legal restrictions.


Leave a Comment