About the editor: Spencer Noon is co-founder of Variant Fund. Founders should reply to this email to get in touch.

This week we’ve assembled a mega issue on Polygon — Ethereum’s internet of blockchains — and are covering 10 top projects in its ecosystem.

In a world where investors are increasingly drawn to shiny new L1s, Polygon feels like one of the most slept on projects in all of crypto:

• Explosive growth in on-chain fundamentals
• User-friendly (i.e. low fees and fast block times)
• Rapidly growing developer ecosystem (especially in gaming)
• Robust infrastructure stack as an EVM chain
• Strong community of supporters

I’ve been investing in crypto since 2013 and it’s not often we see a project emerge with all of these qualities. We’re increasingly spending time on the Polygon ecosystem at Variant, and I expect many investors will too over the coming months.

— Spencer

Network Coverage
This week our contributor analysts cover the Polygon ecosystem.

• Engagement - Polygon PoS userbase continues growth. This week, DAU reached 354k (+4%). This is 61.29% the active user base of Ethereum. Continual growth is driven by 1) sustained cohort sizes and 2) improving retention metrics across past cohorts. Polygon routinely onboards more than 250k new users a week with an avg. cohort size of 347k last month.

• Retention - The latest cohorts are performing at an exceptional level. Cohort aggregations are the best view for this. Relative to the lows cohorts 30-34 showed, the most recent aggregation has improved 1 week retention 2.86x and 4 week retention 2.72x.

• Monetization - Polygon PoS is setting new ATHs in network revenue four weeks running. In $MATIC terms, revenues jumped 24% week/ week. In USD terms, revenues increased 44% to $136k per day! Avg. cost per transaction last week was $0.035. Average transaction prices have grown 53% month over month.

• OpenSea is the leading platform for discovering and trading NFTs. Earlier this year, OpenSea launched a marketplace on the Polygon PoS sidechain. Since June, $234M in trading volume has taken place on the Polygon marketplace. November was an all-time high for trading, with $59.6M in volume.

• Since its launch, 726k wallets have bought or sold an NFT on OpenSea’s Polygon marketplace. 13.1% of the active Opensea (Polygon) wallets have also traded on Opensea (Ethereum Mainnet). The remaining 86.9% (662k wallets) have only transacted on the Polygon variant of OpenSea.

• In November, 94% of the sales on the OpenSea Polygon marketplace were for $100 or less. Combined with the low gas fees experienced when transacting on Polygon, this presents a relatively accessible option for onboarding new users to the NFT market.

• QuickSwap is a fork of Uniswap built on Polygon. The DEX launched in October of 2020 but saw major growth during the May 2021 bull run. This week, the project had ~81k users versus ~115k on Uniswap; the average transaction, however, was much smaller. Cumulative trading volume just reached $33.6b, and QuickSwap saw about $173m in daily volume, on average, over the past week; in perspective, that level of daily volume is about half of Sushiswap and around the same as Balancer.

• The protocol charges a 0.3% fee on swaps, with 0.25% going to LPs. QuickSwap – like many L2 projects – has struggled to attract liquidity, with TVL being ~1/10th of Sushi’s. Despite this difference, QuickSwap’s weekly fees to LPs were ~1/3rd of Sushi’s, highlighting strong LP revenue.

• Quickswap has quickly become the dominant exchange on Polygon in terms of users and volume; the exchange currently generates ~$113.7m in annualized revenue. However, the project’s market cap seems to have lagged behind peers; it currently trades around 17.4x protocol revenue and 2.32x total revenue.

• KlimaDAO is an Olympus fork on the MATIC network that aims to provide liquidity to traditional carbon credit markets by bringing the assets on-chain. Its KLIMA token is backed by BCTs that are retired by verified registries. Following its much anticipated launch in October, the protocol briefly reached over $1B in TVL and market cap. While down over 60% in the aforementioned metrics since, its treasury has doubled its total locked carbon credits to over 12M metric tonnes.

• Carbon retirements saw a massive surge to 18M metric tonnes in October, as cheap credits were brought on-chain en masse. In a span of 2 weeks, over 8.8M BCTs were in circulation –meaning that Klima was responsible for nearly 50% of the global carbon market's monthly volume.

• However, on-chain data reveals that volume dramatically tapered in the following weeks, with daily mints dropping from 3.3M to 25K as of Dec 10. With BTC's price suffering a weekly decline of 30%, there is less incentive to purchase and retire credits via traditional carbon exchanges at the moment.