Polygon has been a crypto project to watch these past months: its MATIC token is up about 60% this year, and about 250% from its low in June. And unlike with many other projects, there actually seem to be strong fundamentals backing the move. So here are three reasons why you might want to consider Polygon for your crypto portfolio.

1. It’s not trying to compete with Ethereum; it’s trying to enhance it.

Ethereum is still top dog when it comes to smart contract blockchains. But even after its merge to proof-of-stake in September (which you can read about here), it’s still slow, expensive, and clunky, as blockchains go. Still, Ethereum does have two important things going for it: its Fort Knox level of security and giant network effects. Now, three savvy developers from India understood this edge from the get-go and launched Matic (now rebranded to Polygon) in 2017 – as a way to leverage the smart contract leader’s position, instead of trying to usurp it.

Polygon is a “Layer 2” Ethereum scaling solution, which was built to help Ethereum (the “Layer 1” blockchain here) reach its full potential. You can think of Polygon as an external hard drive that plugs into Ethereum to boost its processing power. Essentially, Polygon clusters Ethereum transaction data into bigger chunks, processes it, then sends snapshots back to Ethereum to keep it in the know.

And it's not just a win for Ethereum: decentralized applications (or dapps) are cheaper and faster to run on Polygon, but maintain the same level of security. Not only that, but Polygon uses the same programming language as Ethereum, so it's a cinch for developers to move dapps from one blockchain to the other. And at the center of all of it is Polygon’s MATIC token, which garners more demand as the Polygon network grows.

2. It gets used a lot.

It’s important to have good tech, but from a crypto investor's point of view, it’s even more important that the good tech is actually being used. And on that front, there are a few areas where Polygon shines.

According to DappRadar, Polygon’s NFT trading volume jumped 124% in January (yellow rectangle), with the number of NFT sales growing 157%. A lot of that’s been driven by the popularity of Collect Donald Trump Cards and Mocaverse Realm Tickets, and has inched Polygon closer to claiming Solana’s spot as the No. 2 blockchain for the sector.

Source: DappRadar.

Polygon has also seen a big boost in its average daily user count, partly because its speed and low transaction fees make it well-suited to crypto gaming. Although the number of unique wallets interacting with Polygon dipped 5% in January (green rectangle), it still finished up in third place overall. In terms of user numbers, Polygon’s most popular dapps for January were Benji Bananas and Planet IX.

Source: DappRadar.

Then there’s DeFI, and this is where I think Polygon is still lagging a bit. But it’s not doing terribly, mind you. While it finished January with the sixth highest value (TVL) locked in its DeFi smart contracts, it still saw a decent growth of 46% (red rectangle).

Source: DappRadar.

Lastly, Polygon’s business development team is known to be one of the best in crypto, and has racked up an impressive string of partnerships with traditional firms. A lot of those have been in the NFT area, with big names like Walt Disney, Adidas, Reddit, Starbucks, Adobe, and Meta among them. If its business development team can keep up the good work, Polygon could have a bright future ahead of it.

3. Its price is showing relative strength.

Unlike many altcoins, MATIC bottomed back in June of last year, and it's been steadily climbing ever since (blue line). While the total crypto market cap index (ticker: TOTAL; white line) has gained about 20% since then (after making new lows in November), MATIC has seen over ten times that growth. In other words, it’s showing relative strength in the market – and that can be a good thing (as I explained here).

Chart drawn with TradingView.

And, sure, MATIC's current rally does look a bit extended, and the price is pulling back a bit right now. But if you look at its technicals, you’ll see some pretty clear levels that may help you manage your risk. Most importantly is its weekly closing high in October at around $1.13 (orange). The price broke well above that last week, so a weekly close back below it would be a sign for caution – since it could lead to a further slide down to around $1. But if MATIC can hold the $1.13 level on a weekly closing basis, the next potential upward price targets would be somewhere between the 0.5 and 0.618 Fibonacci levels at $1.63 and $1.94, respectively. You can read all about Fibonacci retracement ratios, and why they’re so closely watched by traders, here.

Chart drawn with TradingView.

What’s the opportunity?

As with many investments, this opportunity comes with its fair share of risks. First, MATIC’s price swings can be a lot more volatile than those of your average stock. Second, Polygon has a few competitors in the Layer 2 scaling sector, including Arbitrum, Optimism, and Immutable X. And third, if Ethereum ends up getting faster all on its own, it could offset some of the need for Layer 2 blockchains in general.

Despite all that, the upside could still be big if Polygon can keep building on its own success. And that might pay off nicely further down the line.