Polygon Acquires Hermez for $250 Million in World’s First Token Merger
Polygon’s acquisition of Hermez, a Layer 2 solution based on zk-rollups, will see the first token merger in the history of crypto.
Polygon has acquired Hermez Network, a ZK-Rollups-based Ethereum scaling solution, for $250 million. The two projects are also merging their native tokens, MATIC and HEZ, in the first ever such deal in the crypto space.
Hermez To Become Polygon Hermez
Formerly known as Matic network, Polygon has recently acquired Hermez Network, a ZK-Rollups-based Ethereum Layer 2 scaling solution. The acquisition features the first token merger in crypto history, as Hermez’s HEZ will be integrated into Polygon’s MATIC token.
Polygon is an Ethereum compatible blockchain whose purpose has been to relieve some of the traffic from Ethereum while reducing fees drastically. This design decision has brought a lot of attention to Polygon, with many DeFi projects migrating to Polygon. Yield farming, often seen as too expensive on Ethereum due to high gas fees, has also seen a renaissance on the scaling solution.
Hermez’s Layer 2 solution is based on zero-knowledge rollups, often abbreviated to ZK-Rollups. This technology allows it to process transactions faster and for almost no fees while still leveraging the main Ethereum chain’s security. The merger will see the project named “Polygon Hermez,” and Hermez’s 26 employees join Polygon.
This is a historic event for crypto as never before had a project acquired another project with a token and merged both. From now on, MATIC will be used to pay for transactions on Hermez. HEZ holders will be able to exchange their tokens at a 3.5MATIC/1HEZ ratio.
Around 250 million MATIC tokens will compensate HEZ holders, representing around 12.5% of Polygon’s treasury. With Hermez, Polygon acquires what is most conventionally thought of as a Layer 2 solution, one built on top of Ethereum rather than in parallel like the Polygon Commit Chain, a proof-of-stake blockchain.
Investing in scaling solutions
Polygon has further committed $1 billion from its treasury to ZK-based solutions. “We consider ZK cryptography the single most important strategic resource for blockchain scaling and infrastructure development, and we have a clear goal of becoming the leading force and contributor in this field in years to come,” said Polygon Co-Founder, Mihailo Bjelic.
ZK-Rollups are a type of scaling technology that helps bundle transactions onto a network, e.g. Hermez in this case, and publish their validity proof on Ethereum. This reduces the load on the Ethereum blockchain because transactions are executed outside the mainnet, and it makes for cheaper transactions.
Polygon, on the other hand, offers several Ethereum solutions. Hermez will be Polygon’s fourth solution after Polygon Commit Chain, Polygon SDK, Polygon Avail, and now Polygon Hermez, said Bjelic. Polygon Commit Chain is its flagship proof-of-stake blockchain built on top of Ethereum. Polygon SDK is a software development kit for building Ethereum-compatible blockchain networks. Polygon Avail, on the other hand, is a scalable data availability layer for standalone chains and sidechains, and the new Polygon Hermez solution is a ZK-Rollups-based Ethereum Layer-2 scaling solution.
As part of Polygon, Hermez will “focus on developing the zkEVM technology to provide native smart contract scalability inside a ZK-Rollup,” said Antoni Martin, business development lead at Hermez Network. “This merger should accomplish our shared objective to create a more inclusive financial system that is secure, decentralized, and permissionless, on top of Ethereum. We are committed to working hard to make this dream possible,” Martin said.
There are over 350 projects in the Polygon ecosystem, and the Hermez merger will help them to have more scalability for their applications, said Bjelic.
