Sequoia Capital is playing catchup with arch-rival Andreessen Horowitz in the race to invest in what could be the future of the internet — so-called Web3. The Silicon Valley venture capital firm led a $450 million investment in Polygon, a blockchain network.
Polygon serves as a support layer to Ethereum, the platform behind the ether cryptocurrency, helping it process transactions at scale.
The Ethereum network is different from bitcoin’s in that it supports applications for things like non-fungible tokens (NFTs) and decentralized finance (DeFi) services, not just peer-to-peer transfers.
How Polygon works
Over the years, the Ethereum blockchain has become congested as more and more users have piled in, resulting in slower transaction times and higher processing fees. This has led to the creation of so-called “Layer 2” network like Polygon, which aim to take a load off the main blockchain.
Polygon sits on top of the Ethereum network as a proof-of-stake blockchain. Whereas Ethereum uses power-intensive crypto mining to verify transactions, participants in Polygon’s network just need to show they hold some tokens — in other words, a “stake” — to become validators.
The result is much faster transaction times — in the thousands per second, according to Polygon. In comparison, Ethereum’s network can handle about 15 transactions per second. Polygon says it’s completed over a billion transactions to date and has around 2.7 million monthly active users.
Polygon co-founder Sandeep Nailwal says he sees the company becoming a decentralized version of Amazon Web Services, the e-commerce giant’s cloud computing arm. Polygon’s grander ambitions form part of a movement in the crypto world known as “Web3.”
What is Web3?
Web3 is a hazy concept in tech that refers to efforts to build a more decentralized version of the internet based on blockchain technology.
Polygon wants to be the platform for big brands to develop their own Web3 strategies. It’s already got companies like Adidas and Prada experimenting with NFTs on its network. Nailwal says not all corporations are sold on crypto yet, but NFTs have been easier for them to digest.
Sequoia and big-name investors
Hype around Web3 has attracted some of the biggest names in venture capital, including Andreessen Horowitz, Tiger Global and Sequoia.
So far, Sequoia has stayed relatively quiet about its interest in crypto, while Andreessen has its own dedicated fund for investing in the sector. Now, Sequoia is becoming more vocal.
Thousands of developers across a range of applications are choosing Polygon and their complete set of scaling solutions for the Ethereum ecosystem. This is an ambitious and aggressive team, one that values innovation at its core.Shailesh Lakhani, managing director of Sequoia India
Like Ethereum and other blockchains, Polygon has its own token, called matic. Rather than issuing new shares, the company sold units of token to investors in a private round. Polygon’s backers are making a bet that matic will go up in value as adoption of its network increases. The funds came from Sequoia’s India unit, with SoftBank, Galaxy Digital and Tiger Global also investing.
Polygon plans to allocate $100 million of the funding to an “ecosystem fund” supporting the development of new projects on its network. The rest will serve as “buffer money” to help Polygon’s 240-person team continue building out the platform in the years to come.