Fundamental Building Blocks
Polygon is unique in the fact that it has done the (nearly) impossible: carving out a niche in the cryptocurrency landscape as an EVM-compatible, Ethereum-aligned, quasi-L1/L2 project.
This combination has led to Polygon consistently ranking among the top five in adoption metrics among blockchains, including transactions, wallets, daily active users, and contracts deployed, reflecting its wide acceptance in the crypto community.
Catalyst (Tailwinds)
In June 2023, Polygon Labs unveiled its strategic vision for Polygon 2.0, which aims to transform the Polygon PoS chain into a zkEVM validium and the entire Polygon ecosystem into a platform for “unlimited scalability and unified liquidity” on Ethereum.
Importantly, Polygon is self-aware of its own chain’s limitations and is being proactive with Polygon 2.0, attempting to keep up with the bleeding edge of the rollup and scalability space. The rollout of Polygon 2.0 will be incremental, requiring community approval for each proposal. While this approach is cautious and responsibly considers the opinions of the community, the other side that cannot be ignored is that it keeps Polygon in the news for months as the transition progresses in stages. This keeps the community engaged, Polygon in the news, and plenty of “hopium” for holders, not unlike the ETH 2.0 saga from 2017 to ~2022.
Possible Invalidation of Thesis (Headwinds)
Potential U.S. regulatory crackdowns could negate any bullish momentum created by Polygon 2.0. Polygon’s heavy reliance on Polygon Labs, the multi-sig dependencies, and Gensler’s refusal to apply nuance to any crypto project’s design put MATIC squarely in the crosshairs of regulators.
Fundamental Building Blocks
Pendle Finance is an early leader in the LSDfi space where users can deposit yield-bearing assets (like stETH) into a smart contract to create two new tokens: a Principal Token (PT) and a Future Yield Token (FYT). The PT represents the original asset, while the FYT represents the future earnings from that asset. Users who hold FYT can collect earnings over time, sell them, or add it to a pool to earn more rewards. When FYT expires, PT holders can either create a new FYT or get their original asset back.
Catalyst (Tailwinds)
Ethereum staking has become big business in the last ~two years, with nearly 26M ETH currently locked on-chain and still plenty of room to grow as only ~21% of the total ETH supply is staked. Riding this wave are LSDs (which only account for ~28% of all ETH staked) and the cottage LSDfi industry that is enabled thanks to the new base asset (stETH, rETH, cbETH, frxETH, etc) that is not only liquid but yield-bearing. Pendle has proven itself an early mover in the space with real adoption metrics and TVL. Pendle has positioned itself to continue to ride the wave of LSDs while also charging two fees on its protocol (a 3% fee on YT's earnings and a 1% trading fee) that can establish it as a sustainable DeFi protocol with staying power.
Possible Invalidation of Thesis (Headwinds)
One word: competition. The LSDfi space is very new and very “hot” right now, meaning there is no shortage of projects offering similar services. It will be important to watch Pendle’s TVL and position among competitors as liquidity and fees will help catapult the industry leader.
Diva Protocol (DIVA)
Fundamental Building Blocks
Diva is a Distributed Validator Technology (DVT) protocol on Ethereum that enables users to easily stake their ETH and contribute to the stability of the staking network without the usual pitfalls of relying on a central third party. DVT operates by distributing the responsibilities of a validator among several nodes, similar to a multisig arrangement for validators. This method enhances the validator's reliability and operational up-time by decentralizing possible failure points. Consequently, solo stakers can worry less about maintenance problems and slashing penalties.
Catalyst (Tailwinds)
Similar to LSDfi and restaking, DVT is another popular Ethereum narrative gaining steam. This is partly due to its promises of improving/securing Ethereum staking and that a handful of early projects (and tokens) are finally launching. Diva is one of those early pioneers and just recently conducted an airdrop, meaning users can now speculate on a new critical Ethereum infrastructure project.
Diva is unique because it offers both liquid staking and DVT in a non-custodial way, meaning users have full control over their assets. One divETH (Diva's token) always equals one ETH held in the Diva staking contract. As staking rewards increase, so does the divETH balance. These balances are updated daily, and divETH can be used just like regular ETH to earn and lend rewards.
Possible Invalidation of Thesis (Headwinds)
History has repeatedly proven that new airdrops often get “insta-dumped” by a large percentage of holders, leading to price depreciation. While the odds say that DIVA may suffer the same fate in the short term, it could lead to an attractive buying opportunity for believers in the DVT space in the long term. However, given the near certainty of airdrop farmers dumping the token, it may prove too much to outperform ETH on a short-term horizon.
