Analyzing Polygon Tokenomics (POL Tokenomics)

Polygon, pursuing its objective to be The Value Layer of the Internet, has recently proposed an evolution of MATIC token, POL. POL is defined as the 3rd evolution of tokens, hyperproductive tokens, where holders can become validators in multiple chains and every chain can offer different roles and rewards to validators. 

We're going to simulate these new tokenomics using Cenit’s technology, using agent-based simulation methods. First, let us share our main insights (this is Not Financial Advice):

  • POL tokenomics appear robust and ensure steady appreciation over time if the current Polygon growth hypotheses hold true. By the end of the simulation period of 10 years, POL is projected to attain a valuation of approximately ~$5 USD, leading to a market capitalization nearing ~$60 B USD
  • However, in the base protocol adoption scenario, POL requires additional incentivization by the treasury to provide proper revenues to validators until its fifth year, leading to a projected expenditure of ~$170 M USD on rewards
  • The POL treasury is well-equipped to sustain this rewards strategy efficiently. Only under very strained conditions does the draining of treasury reserves pose a potential threat to the project
  • The projected dilution of POL stays within healthy thresholds

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Tokenomics design simulator

In this article we are going to: 

  1. Review POL tokenomics Utility, Emission and Design
  2. Define the hypotheses to model different scenarios.
  3. Explore the scenarios in Incentivization and Growth
  4. Explain the highlights of the simulation results
Tokenomics simulation engine

Want a direct look at our results? Dive into our interactive dashboard here.

Polygon tokenomics (POL Tokenomics)

Polygon envisions itself as the Value Layer of the internet, where value is freely exchanged as information is today. In order to achieve that, it needs an infrastructure supported by a token that is able to scale without compromising security. That’s where POL enters into the equation.

POL tokenomics operate on an incentivized staking model. Validators secure the network by staking tokens to authenticate transactions. To motivate these validators, a reward system offering a ~5% APY has been established, granting them rewards both from the networks they validate and directly from the treasury. Validators can accrue additional incentives through:

  • Base protocol rewards
  • Transaction fees from validating multiple Polygon chains
  • Additional rewards that can be offered by certain Polygon chains, payable in POL, stablecoins, or native tokens

POL begins with an initial supply of 10 billion tokens, intended to facilitate the token swap from MATIC to POL. In addition, POL has an emission policy with a deterministic emissions rate, in two parts:

  • Validator rewards at a yearly emission rate of 1% of the total POL supply
  • Ecosystem support, also at a yearly emission rate of 1% of the total POL supply
Diagram flow of token design

Full overview in the whitepaper.

Users in the economy

Now that we’ve had an overview of the new token, it's important to identify its various users and understand their incentives. This is the essence of agent-based simulation: a group of users (agents) interact within an environment (the POL ecosystem) with different objectives, and we analyze how these interactions influence factors like token price, buying pressure, and more.

Under this economy, it’s the stakers that are going to want to accumulate tokens and act as a drain, since it’s only their utility that increases in value as long as the protocol grows. If there are no new stakers, probably there will not be additional net buying pressure.

Some users will buy tokens to pay for their transactions, but in general someone else will be selling those tokens, so the net effect is neutral in terms of buying pressure for the token.

Whitepaper hypotheses

A key aspect of simulations and assumptions is the flexibility to test various premises to understand their impact on the overall economy. Using our POL tokenomics simulation dashboard ( ), you can explore and comprehend how different "what if" scenarios might influence the broader economic landscape. The following hypotheses are as outlined in the whitepaper:

  • Initial supply: 10 billion POL
  • Yearly emissions: 1% for validator incentives and 1% for Community Treasury for the first 10 years
  • Transaction averages: 38/second for public chains and 19/second for Supernets
  • Average transaction fees: $0.01 for public chains and $0.001 for Supernets
  • Validators: 100 for public chains and 15 for Supernets
  • Average validator operational cost: $6,000/year
  • Stakers should always be at least in the range of 35% of the tokens
  • Simulated over a 10-year period with bull, base, and bear scenarios as detailed in the original paper
Growth scenarios from POL whitepaper
Growth scenarios from POL whitepaper

Further hypotheses & additional definition

In terms of token holders and their behavior, based on current wallet distributions we have:

  1. Foundation & Ecosystem (treasury): holding 9% of the supply, with an annual sell-off of $75M for operations.
  2. Stakers: owning 38% of the supply, they balance buying and selling to achieve an expected APY. They expect a ~5% APY / Return on Work. (visit our documentation to further understand on how we model this) 
  3. Market Makers: Holding 10% of the supply, they focus on providing liquidity.
  4. Holders: with 43% of the supply. The assumption is that the current holders in the economy do not sell or their sales are perfectly compensated by new buyers, setting the selling pressure of these agents to zero, which is an optimistic assumption.

 Defining incentive policies & scenarios

Validators are the cornerstone of the staking economy, ensuring the network's security. But there is an important question to answer through our simulations. 

Can Polygon sustain the stakers incentives and the protocol market cap until the ecosystem reaches self-sustaining performance, and if so, how?”

The whitepaper doesn't specify the mechanics of this additional incentivization, but we can logically deduce different potential incentivization scenarios

  1. No Rewards Policy: the results when only chain fees and the 1% emissions are given as rewards for the validators. The token economy moves freely
  2. Maintain APY Policy: maintain ~5% APY for stakers, no new stakers. Polygon only maintains the incentives to keep the APY  of the stakers at ~5%. However, under this scenario, no new stakers will join unless the APY is higher than 5%
  3. Maintain APY and price Policy: maintain ~5% APY for stakers while token price remains the same. In this scenario, we assume that the token sales are neutralized with new stakers. Polygon treasury will need to adapt the amount rewards to ensure that the APY does not drop below the initial value. Assuming rewards are fully given in Stablecoins
  4. Maintain APY and price Policy with tokens: maintain ~5% APY for stakers while token price remains the same, in tokens. Providing the rewards in POL token. This approach introduces selling pressure as these tokens go directly from the treasury to the markets. This is the most likely policy to be applied by the protocol and considered the base case

We want to address this for the three possible adoption scenarios for Polygon, based on the assumptions in the whitepaper: Low, Medium, and High Adoption scenarios.

Now that we have defined the economy, the different growth scenarios and incentivization scenarios, we will report the key findings from our 10-year simulation that integrates all these scenarios.

Remember that you can create your own scenarios here.

POL simulation insights

The expenditure by the treasury could reach ~$170 Million or run out of funds in some scenarios.

Let’s first examine the results for the different incentivization policies through some of the most important KPIs: 

Note that the simulations indicate a 10x increase in token value in 10 years. This seems high outside of speculative movements, but it stems from the expected sharp rise in demand for Polygon, which if materialized could cause the price to quadruple in the last 3 years of the simulated timespan.

The results show that the best scenario in terms of lowest expenditure and highest token price is the incentives for constant APY given in stablecoin. The second best is incentives in token. It's worth noting that the treasury might not have the capacity to sustain the first case with such extensive payments only in stablecoins.

While the 'no incentives' model might seem appealing at first glance, it isn't without significant drawbacks. In the absence of incentives, the token price drops to a minimum of $0.25.

Expected token price for given token design

A similar result is observed in the policy of maintaining an 5% APY for at least 35% of stakers.

Moreover, in these two scenarios the treasury reserves run dry by the 56th month in the most pessimistic growth hypothesis case. As a result, this introduces a significant risk to the project's long-term survival.

Note: It might seem counterintuitive that the amount of tokens in the treasury at minimum level is lower when there are no incentives. The explanation  is that the treasury needed to sell way more tokens to reach the $75M/year baseline rewards due to the lower token price.

Although the POL economy should not be at risk under the medium adoption scenario, there should be a mechanism to ensure that the market pressure is balanced with newcomers, and therefore the POL ecosystem should be ready to provide enough incentives for that. 

Let’s have a deeper look at the simulation results when these scenarios of high additional incentives are active.

In the medium adoption scenario the protocol is healthy, staking is profitable, and the treasury is resilient

We modeled a policy centered on stabilizing the token price with rewards given in tokens, in the medium adoption scenario. This approach requires distributing additional rewards as incentives to validators in POL tokens.

Protocol & token perspective

By the end of the 10 years of simulated time, our model anticipates that the protocol will generate approximately $100 million per month in fees. In this scenario, the token price remains steady at around $5.

Token and protocol growth


From the operator's perspective, looking at their profit and losses of running a node, in this context, we can see how the costs of running an operator generate a big margin in comparison to the profits, ensuring that they are always economically incentivized to keep up with their activity.

Stakers costs and rewards

Treasury and incentives

The POL token will necessitate additional incentives until the 5-year mark in our base scenario. This corresponds to a cost of about $5 million monthly, culminating in a total projected expenditure of $168 million on rewards.

Costs of incentives in current token design
Incentives given by treasury

One key takeaway is the resilience of the treasury. Throughout the simulation, it consistently maintained enough reserves to bear these costs and keep additional reserves in the treasury.

Amount of tokens of the treasury during the simulation
Treasury amount of tokens during the simulation

Polygon Token Performance Across Scenarios (10-Year Forecast)

Assuming no additional sales by existing token holders and a policy of keeping the token price based on token rewards for stakers, Polygon's intrinsic token price after a decade could range from $1.31 to $9.51 USD, depending on actual user adoption—be it in accordance to the low, medium, or high adoption scenarios from the whitepaper.

Notably, as the scenario becomes more optimistic (from Bear to Bull), the expenditure by the treasury decreases, indicating a more self-sufficient ecosystem.


  • As long as Polygon is able to keep up with their adoption hypotheses, POL's future looks promising
  • A well tuned incentivization policy is essential for ensuring the stability of the token economy and optimizing the treasury’s resources
  • There are only a few specific scenarios we've pinpointed where there might be concerns about the protocol's sustainability

Any other questions, ideas or scenarios to model, reach out at and don’t forget to visit the dashboard in order to test the simulation and play around with the design parameters and hypotheses.