Matic Network is a blockchain platform which aims to provide scalable and instant transactions. The project aims to build a layer 2 (off chain) solution on Ethereum. A layer 2 is used to scale blockchains transaction capacity.
As we have seen the Ethereum network is sometimes clogged so gas fees tend to increase substantially and transactions cannot be executed at a small fee, which is a problem. Ethereum is a victim of its own success. As more users rely on its network to execute DeFi related transactions. That’s where Matic and layer 2 solutions come into play with a side chain.
Matic has a valid use case and solves a real problem; scaling Ethereum blockchain with the help of their chain. The project has been actively developing their platform and is about to launch their Mainnet.
As we have seen in the past, Matic is also highly speculative. It has already pumped three times and has started to pump once again.
We check if it makes any sense in terms of transactions and active users over time to get a sense if people are really interested in Matic or are just here for speculation. The result is quite astonishing.
Analysing the blockchain
Transactions per day
Transactions per day is defined as the total number of transactions performed, per day.
Matic has seen two peaks in terms of transactions per day happening with their smart contract and is currently on an uptrend for the third time, as depicted by the 30 day moving average (SMA30).
Active users per day
Active users per day are measured by addresses interacting with the smart contract, as opposed to people who have visited Matic’s website, for example.
It follows the same pattern of transactions per day.
We see that Matic has a pattern in both transactions and active users interacting with its blockchain. We are about to show you that this is related to speculation only, a bad point.
With Matic about to launch its mainnet does it make sense to buy it at $0.02 based on a activity ? Or are we going to see a third pump and dump or is it the beginning of a new chapter?
To value traditional stocks, financial analysts use different valuation models and ratio. A common practice is to divide the price by sales or book value (Price to sales, Price to book value, and so on).
In the crypto space, we see a lot of different ratios as there are no official conventions on which ones to use. As a result, we build two customs to value Matic; the Price to Monthly Active Users and the Price to Monthly Transactions.
Why do we use these two ratios?
Crypto assets can be seen as networks and the more they are used, the better they are. So we build our valuation with two components: transactions and active users.
We divide the price of the crypto assets by the two components mentioned above and we obtain two ratio, which points out if a project is currently undervalued or overvalued based on historical data.
The lower the ratio, the cheaper the crypto asset, based on history of data.
As you can see in the below chart which compared the Price to active users Ratio and the MATIC price in USD, there is a strong correlation between both variable. On the transactions, the chart is very similar as well.
It demonstrates that Matic is used more and by more people when there is a speculative frenzy occurring. This time is not different.
As a result, Matic appears fairly to over valued based on the Price to active users ratio.
As Matic has been actively shilled in the crypto sphere for already quite some time, we remain cautious on the recent price surge and would certainly not FOMO buy any MATIC here. There are better opportunities elsewhere.
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