We continue our Q&A interview series, in which our co-founder Adam Goldberg speaks to founders about the most important inflection points in their careers, projects, and protocols.
Today we speak with Sandeep Naiwal, the CEO of Polygon, a company at the forefront of blockchain scaling.
Startups are a series of unknowable choices. All great startups have inflection points where builders are faced with difficult decisions that will compound for many, many years, for better or for worse. In this series, we will explore a range of inflections a project has encountered, some in the past with the benefit of hindsight, some in the present, and others with an eye towards the future.
This transcript has been condensed and edited for brevity and clarity.
Early Polygon
Adam: Hi, I'm Adam Goldberg, one of the founders at Standard Crypto, a venture capital firm with elite company-building experience and deeply rooted expertise in crypto. A big part of our job is serving the entrepreneurs using blockchain to reshape the internet, marketplaces, and money itself.
Today, we continue our Behind Crypto's Builders series with Sandeep Nailwal from Polygon.
Startups are a series of unknowable choices. All great startups have inflection points, where builders face difficult decisions that will compound for many years, for better or worse. Let's talk about some of the inflections Polygon has gone through over the years.
So Sandeep, to help kick things off, let's review some of the Polygon history. You started as Matic as a sidechain in 2017 and ended up building one of the most important projects in crypto, but there was a time when everything was new, right? When you rewind to that phase, your brand, even the concept of a sidechain or an L2, what do you wake up and do every day?
Help us unpack the genius that was Polygon and its rise to prominence.
Sandeep: Yeah, you had to bring that sidechain thing right up front. We started as a plasma solution. So everyone wanted to build Layer 2’s, which was the original after state channels – which is very similar to the Lightning Network on Bitcoin. The research moved to these plasma solutions.
We were building the plasma solution, and actually, we delivered a working plasma solution, you can say in modern terminology, like a stage zero plasma, then we were trying to build plasma on an EVM chain fully. Plasma security only supported the payments, and the other EVM part was not fully provable.
Meanwhile, the Ethereum community decided that plasma doesn't work right now (even though it is coming back lately). Back in 2019, we all decided that plasma was not working. Then, the attention moved to the optimistic rollups. We continued, and we delivered the state zero plasma version.
When we launched the solution, Plasma was a bit complicated. The tokens did not have some features, so people started using more of the EVM chain, which eventually acts as a side chain but still commits its state and everything to Ethereum. Then, that was the solution.
We all came from an engineering background instead of a research background, and previously, when I joined Ethereum and my other co-founders also joined Ethereum, we originally wanted to build apps. We even tried building a few apps individually, but the blockchains don't have that level of scalability. So, we realized that this is a much bigger problem to solve at this point in time. So, we jumped into infrastructure.
We always had the perspective of an average developer, what they were thinking at that time. So we wanted a low-cost but decent developer experience—an Ethereum-like developer experience with Polygon then and as a pragmatic approach. The goal was that we see where it goes in the long run.
Then, eventually, we stumbled onto the larger real Layer 2 models, which are now happening. We are one of the leading zero knowledge teams, in fact, in terms of talent, probably the leading zero knowledge team in terms of the talent on the team and the contributions we are making to the space, but definitely one of the top teams in the space.
We shipped our zkVM. We had money to do approvals and all that, but the goal was because we came from a background where we needed to have big venture capital investments behind us. We couldn't even raise $500k for ourselves. Our first fundraise was $165k in total. Nobody invested in us then because we were not native to the U.S. It was hard; it was really hard for us. Then, we were lucky to get selected on the Binance launchpad and raised some money there.
Then, it started a long journey, multiple years of journey. Polygon is a decently known project now, but it took us two to three years to get noticed. Before that, there was a running joke in the Polygon community that the whole of Crypto Twitter is sleeping on Polygon.
When we initially had five or ten applications, we’d say, okay, the attention will come. Then we slowly went to a hundred apps on Polygon, and we'd be like, still, nobody's looking at it. What's going on here?
Then, one of the applications built on Polygon, Polymarket, a very famous application on the prediction side in the prediction markets, blew up during the U.S. Presidential elections, and people started noticing. People in the Ethereum community talked about it. Some people noticed it, but only after we fully presented our vision that we wanted to be multi-chain from day zero. We wanted to be multi-chain, but we were always a pragmatic project. So we tried to do what was possible today. So when we rebranded to Polygon, emphasized our vision, and started doing something in ZK, people started noticing us, but not until 2021.
Navigating a Rapidly Evolving Landscape
Adam: So there's a lot to get into. There's one point I wanted to double-click on to start with: You talked a little bit about the technological journey, right, and how you've always been navigating inflections by doing something new, whether it's moving deeply into ZK or moving away from plasma as you mentioned.
How have you managed to build a team that is so deep in technology when the goal has constantly been shifting? You've always had to be peering around a corner.
Sandeep: Yeah. So I mean, that's a tough problem, and to be honest, when the goal is shifting—and actually, it's not a great position to be in—you need to have those teams to keep working, keep focused, and have that engineering org with the culture and everything inside it to ship the products.
It creates problems many times, you know, and we have had our share of problems, but whenever you have the large or long-term vision clarified, where you want to go. Then, things fall into place. We have been very clear.
Whenever I speak internally with our team, that is always very clear. We want to be a part of or contribute to this new internet that is being created, and in all our efforts, you see the current aggregation layer where we are, kind of now pivoting into more and more, is our attempt to provide some level of differentiated service as a decentralized service to all the stakeholders in the community.
It can work more collaboratively and tries to be a part of the larger internet. People should read the protocol wars, even on Wikipedia, to learn what happened when the internet was created. It's a very interesting journey when you see what was going on at that point in time and how, eventually, few protocols became universally used. Those protocols generally were the most open ones where everybody could participate instead of creating empires on those protocols the way Vitalik mentions in his blog post, "build tools, not empires."
In thinking more in that direction. The long-term goal has been clear, and if you do that, I think it brings some level of stability to the team, but it's still super hard. We are also lucky to have amazing co-founders who are super deep in the technology side, so that also helps.
Business Development Efforts
Adam: Let's discuss the BD side. Many founders have come to regard Polygon as the gold standard of BD within crypto.
But when you look back in hindsight, what do you wish you had done differently on the BD side in the early days? Was it chasing established brands too early, over scaling the organization, or something totally different? What are the learnings you can share?
Sandeep: So, on the BD side, we have learned that people didn’t see that we went under the radar for a long time before surfacing. There wouldn't be many different things we would be doing. We have passionate team members who want to see Web3 pick up adoption and whatnot.
Originally, when we were working in 2019, '20, and '21, we were already working with many builders and developers under the hood before people even knew it, right? Then, by the time it became really big, suddenly, you see a team that is extremely resource-constrained but still getting developers onboarded. Now, they suddenly have the resources at their disposal, too. So that became big, and then tech power became multifold.
Skills were harnessed when we were extremely resource-inefficient. Right now, a lot of projects that are launching or we recently launched have new tokens and all that. Many people like their token-granting capabilities, but their teams are growing at a time when they are very, very resourceful, and these things change. You know, in one year—one and a half years—whenever this cycle, there is a current cycle, as everyone says, price cycle. Then, this price cycle ends, and you can see how much good their teams are doing.
We harnessed our skills during those bear market times and extremely resource-constrained times. In '18, '19, '20 and the mid part of '21 we had three and a half years of Polygon, and Polygon needed more resources out of those years. So it looks like, "Oh, Polygon is a big project," but it was not a big project. It was overlooked and sometimes hated because of the sidechain plasma project. So you know, it has been very difficult for us. Also, because of this side chain and all this, we did not have any founders from America.
We could have done better in storytelling. I'm pretty sure that if there were an American team that took this exact same path, they would've built it in a different fluffy way —not fluffy in a bad sense, but they would have had a very nicely woven story. That's why we are doing what we are doing today.
Again, I don't mean to say it negatively if you see optimism today, right? Optimism has yet to have the optimistic proofs as promised, but they have very precise, good storytelling with the community that this is coming, and they are working on it.
I'm sure like, you know, good people, they will bring it, but they didn’t have to go through all of this pain that we had to go through had we been a little bit better at storytelling and had I been better because I was looking at as this is my fault. I was super bad at that storytelling and branding. I should have done that better, telling people that, okay, this is what we have today, guys, we don't have the solution, but everybody's building. We are also eventually building, which will convert into our Polygon POS chain. Now that we are very close, you know, we will be able to update it into a fully ZK-proven chain in a few quarters, but we could have been better at telling that story before. We should have done better.
Adam: It's helpful for people to hear the history. And I think that what I'm hearing you say is that in bear markets or times of lesser resources, you made things happen on the BD side because you had to, and that necessity bred the innovation. That's cool.
On a related note, when you think about where you have had a lot of success, it's been in partnering with numerous household brands. Partnerships like Nike, Disney, Doritos, and even Donald Trump have always looked different.
Sometimes, it's participating in an accelerator, and sometimes, it's as simple as a brand launching an NFT collection on Polygon. But how should crypto founders think about selling to established brands? Is this good for long-term crypto adoption, or is it just vanity?
Sandeep: This is definitely very important. You know, because there are two schools of thought. One school of thought will say that crypto will have native applications, and native applications will become big, and only they will be successful.
The other school is like, yes, we should have some mainstream adoption, and they will also become big. Because we have seen some of that mainstream adoption, my thesis has always been that I see blockchain as nothing but trustless computation.
So, the current web internet has interconnectivity with trustful communication. This new internet will have interconnectivity with trustless computation, right? I don't see the whole crypto industry as a separate vertical; people think of it as a separate vertical that should have new apps.
I think of it more as horizontal, like cloud computing. Cloud computing is trustful computing. This is trustless computing, and everyone should use it. Startups should use it. It should be used by mainstream, and you will see that, which we saw with cloud computing also. For the first ten years, startups mostly used cloud computing.
I remember being with Deloitte and then with a large institution for a very short time. Even then, in these high-level meetings, my IT leadership simply discarded cloud and said that we will never use. We will never use cloud because we can't share our data and all that. And now, it's been seven years, and most of the large enterprises are using cloud computing. However, enterprise adoption was very limited for the first five, six, and ten years. That was the part that excited me about having enterprise adoption because that will play a more significant role.
Timing might be up and down because right now, the market only values speculation. Crypto markets only value speculation, these quasi-gambling use cases or crypto trading speculation, meme coins, and I'm not saying they are bad. They all tell you where the culture is moving, right? They tell you what the youngsters are doing. So I have no, in a distasteful way. I'm just saying that that's what the market values right now. A lot of projects right now might not want to talk to large institutions; they just want to talk to the crypto-native Web3 institutions, and that's also fair. The timing may not be right for this.
The second thing I observed is that this is also very cycle-dependent on which phase of the cycle you are in. When the cycle starts, you want to show Web3 adoption. Then Web3 adoption starts happening, and this is a speculative market, hyper-speculative in that sense. Narratives go up, and once the price has materialized, people are like, what next? What next? What next? During the late parts of the cycle, suddenly, enterprises and brands have become important.
I have seen these brand integrations, and all that is very, very good. I have seen Reddit having, I think, maybe around 25 million plus Onchain holders of NFTs. Some of them have traded those NFTs. If I'm not wrong, Nike is making like a hundred million plus by their NFT programs. Starbucks is currently proceeding with its own loyalty programs.
A lot of enterprises are experimenting. Their cycles are longer. They are not living in our crypto cycles. For them, this thing should materialize in three months. These are two-year three-year cycles. I hope that enterprise adoption picks up, which will help to enlarge the pie for crypto as a whole.
Managing a Team
Adam: Yeah, if you look at it as just a compute plane horizontally, there's no path forward without getting adoption across everything, including these types of organizations. So, yeah, that totally makes sense. Let's talk about how you manage building a layer and ecosystem and what that, you know, brings as a set of challenges in managing a team, right?
Because I think teams most often unite around quantifiable goals, right? You hear people talk about getting to a hundred million revenue run rate, or if it's a consumer app, getting to a hundred million, you know, users. Polygon has a lot of initiatives, right? There are things ranging from the ZK side to, even at one point, you were working on decentralized identity.
How do you unite your team on a north star? What is it, and if you could only have one dashboard in the office, what would that be?
Sandeep: Yeah. So for us, that dashboard has always been thinking of the pure protocol revenue side. I would say thinking about how many transactions that are happening on the network and what kind of revenue protocol that is making should be the north star for everyone. Still, it looks like those values that the market, whatever valuations or pricing and all that, and the community doesn't want to look at them.
So, they look at the overall narrative around a particular thing? Right. We know both that there are protocols, like 20, 30, 50 billion-dollar FDVs, and you go and check the protocol revenues, like it ranging from $10,000 for some chains. I've even seen $50 to a hundred dollar daily revenue. The protocols are valued at 8 billion, 10 billion, and 20 billion, right? That's an issue with crypto, as these things are mostly memetic.
But for us, the protocol revenue would be one north star, which we should track long term, you know, in three to five years. In the short term, we also see daily active users, like daily active wallets, in the form of users if a good analytic dashboard provides the active statistics around it. But we also see around most bigger sectors like DeFi and NFTs and different sectors.
As you can imagine looking at what number of developers are building on us in gaming? Where do we stand regarding the number of developers building something on the Polygon chains? That's the short-term or immediate north star but when we have to look long-term it has to be protocol revenue.
Culture
Adam: Let's talk about culture more broadly.
There's a set of companies out there, especially in crypto, that emulate a Google-like culture of opulence and fringe perks galore or where work is the perk at other companies, and I've been to the Polygon office. You operate in a way where work is the perk.
You've raised basically 500 million, but you're certainly not wasting it unnecessarily. What is the Polygon culture?
Sandeep: The Polygon culture, because of a lot of acquisitions we did and then in the bull market, we had ramped up hiring, classic mistake every extensive exponential growth startup kind of goes into. I would say that the culture has been a little bit in flux for the last year, but if you look at the long-term alignment of the culture, we want to be a part of this new trustless internet and what it becomes.
Create the part of technology that becomes a part of that. That is the primary cultural tenet, but otherwise, humility and serving the developers building on Polygon are the two important things internally. Humility is very important to us. That's why we would rather give large grants to our developers. That way, they can build their applications instead of us spending a million dollars on the office or these kinds of things. We want to do that. Then, obviously we pay pretty good salaries to our people.
We don't fly people business class; there was a short time when some leadership said there should be some allowance, but we eventually shut it down. Stay extremely humble, then spend that money on the community because this is Polygon community money, right?
Whatever funding revenue doesn't come to Polygon Labs, It is funded by the Polygon community to spend more on the Polygon community and on people who are building that core community instead of spending it on other things.
Crypto M&A
Adam: I think you alluded a little bit to some of these highly, you know, successful technical acquisitions you've had in the past. What do you think a successful M&A motion looks like for a protocol or network over time? It's something that's been a relatively unique approach for you guys.
Sandeep: I think, in crypto, it's not that problematic; how is it different than any other. The web2 very large scale M&As, there is equity and this and that like so many things that are involved. But in web3, when there are like two tokens I think both the communities can agree for a token swap at a particular price, and somebody in the community builds a particular swapping address, and people can just simply, you know, kind of move over, but then we also have to see obviously those tax implications and so many other things but we believe that people can look at individual levels on their own based on their local geography because crypto is inherently global. But yeah for us it's very, very simple: look at the teams who are aligned with our long-term vision, and if they are aligned, then proceed.
Adam: So, from your point of view, the fact that tokens are in play and maybe they're separate decentralized networks is just an implementation detail.
Sandeep: Yes, especially if their DAOs have given them permission or communicated with whatever governance mechanism they have. The rest is implementation detail, and the rest is a standard process where you have to integrate the team and assimilate the teams, and you don't do those things. So yeah, I don't see it as an extremely complicated matter.
Adam: What were the lessons that you learned about some of the early acquisition behaviors? Because I think it's a tiny sample size for crypto overall, it's worked out well for you, and I think you feel it's simple. Still, many others haven't taken that approach, so what did you learn to iron out this motion over the numerous acquisitions you’ve done?
Sandeep: Yeah. I think the key learnings are when you merge external teams and the founders are also obviously, most of our founders are giga brains, geniuses in their own right. The most important thing and the hardest thing is to align them all in one single direction; even though everybody's working in the direction to take Polygon further, it's very hard to align everyone in one direction.
That's the lesson on day zero; how can you have maximum alignment on that? That's the most important thing, but I would also say that acquisitions are hard because you end up building a lot of duplicacies with a lot of duplicate effort.
Duplicate costs and things like that take a lot of time to remove those duplicates, and one lesson could be looking back; it's a double-edged sword. One way is to completely remove all the duplicacies and assimilate the two teams into one single team. There are benefits to that in the long term, like alignment. Still, it also makes the other teams, the founders, and incoming co-founders team members and employees in the team which should not diminish their creative curiosity.
It's a very important balance that they should feel welcomed and feel they can emphasize their full creative and technological talents. On the other hand, it's also interesting to see how we did it. We allowed the teams to operate completely independently and autonomously, and they did their own thing, with just strategic alignment in the middle. Only now we are consolidating and having some consolidation ironing out issues.
Generally, these are two schools of thought, and none of them can be said. Okay, this would have been the correct way. I think certainly, in our way, we could have maybe worked more on the strategic alignment between the teams and would use some of the duplicacies, but largely, I think it worked out well for us because we had empowered co-founders coming in. We even onboarded them as the core co-founding team itself you know, across various pieces of the, of the protocol and for us, it, it has worked out well till now.
Team alignment
Adam: So I'm curious: you've mentioned alignment and vision a couple of times.
When I saw you last in Dubai, you shared with me Polygon's unique approach to vision alignment in terms of a notion doc that you have. Can you talk briefly about how that works and how you came to do it over time?
Sandeep: Yeah. It’s not fully rolled out, but at least with some small teams, I'm doing that. The one thing is, as you grow, the team's alignment between the teams becomes a big issue. I think now I have to say that one thing you can do as a part of your culture is build a very high context and high alignment team. That itself for example, for me, is the culture. If all the other things, whether it's like work-life balance and whether you have food in the office all those things are superficial. The core thing is, whether all your team members and teams are aligned in one single direction, they're focused towards one single direction like an army unit. Instead of looking inwards and infighting, they are all charging towards the enemy, which is your own deficiencies in being unable to build the best product for your end customers?
That alignment is the culture. Then for that alignment to fully roll out and run it at that scale small teams works. I have to see what, whether it works on a large scale having a straightforward structured documentation where everybody knows that this is the long-term vision. This is the strategy, and people should have constant sessions around it where everybody is aligned with them.
If people think that there is a dichotomy or doubt about some particular thing, then those should be resolved. They should be commented on by people, and others should be converted into facts, then everybody should be on the same page on what we are doing, and they should clearly know their role.
The Future of L2's
Adam: And that brings us to the last question we have time for today, which is to talk about the future and the vision, right? So, I think L2s have gone from being an abstract concept to a real surface with a ton of activity during your time working on Polygon.
Talk to me about what's happening with L2s going forward. Can you paint a picture of the future of blockchains from the Polygon perspective?
Sandeep: From the Polygon perspective, now, with these Layer 2 stacks, there will be a lot of execution in the ecosystem and a lot of computing power will be available on these trustless computing power sources in the network.
Think of it like all these Layer 2's and service providers who are growing and adding more data centers. It's important that these are networks of value; the value should be able to flow seamlessly, trustlessly, and securely. It should be able to flow in one single trust unit, and that is our core goal for the aggregation layer we recently launched. We want to ensure that all the chains connecting into the zag layer are fully sovereign.
They use it as a service. As I mentioned, Vitalik says, "Build tools, not empires." This is one of the solutions we are trying to build, and it is a tool many people can use. As a Layer 2, we want to collaborate with other Layer 2's and other Layer 1's, like Near Protocol and Canto. We want to collaborate with as many protocols as possible and then provide a single security zone. Think of it as a single substrate across the chains; those sovereign chains can accrue those values individually.
We want to play the role of providing that single, as we call aggregated state machine. All those state machines are aggregated together. In one single copy, we just proved and settled on Ethereum. That's where we are seeing this ecosystem will grow like really, really big. There'll be thousands of chains. I believe you know that by the end of this year, there'll be 500 to a thousand different chains, including app and public chains. Then, next year, we'll see an exponential growth curve; it will go to 10,000 by the end of next year.
So, you can imagine that by the end of 2025, I think there will be 10,000 app chains, plus public chains. What's going to be important is how those chains are working with each other how value can flow in a single trust environment; instead of relying on multiple trusts, you can think of bridges also where you have chain one and chain two and there is a bridge in between and the user has to hop through three layers of security zones.
Can we have one single security zone, and you have bridges on top of it? Then, people will use them, and value will flow seamlessly and trustlessly. That's where we believe the crypto world is going. Compute will be available in plenty. Interoperability will be extremely important, and people will build when you have compute in plenty. People can build multi-million daily active user applications, unlocking the next stage.
Before '20, 2017 to 2020 was the first stage of this web3 onboarding. I'm not talking about the Bitcoin era, but web3 onboarding then, like 2020, that DeFi summer, really took off the adoption to the next level, like 10x that, and then that 2020, '21 was the bad period. Hopefully, this '24-'25 will be the next stage of the 10x growth, and we will see some applications with, let's say, at least a million daily active users.
I see the world going that way, and Polygon is trying to play this role: We enable infinite scalability with various sovereign blockchains but seamless interoperability, connectivity, and composability, in more technical terms, across these chains. That's where we want to play the role.
Adam: Well, I look forward to the era of 10,000 app chains run by teams that are driven by high context and alignment.
Sandeep: I'm really, I'm passionate. We work hard. I also worked hard. It's like midnight here. I'm still in the office. I have a 20-month-old kid, but I'm so passionate about this. I want to see a world where we have tens of millions of daily active users using different kinds of apps on web3 and all that. I would say that will be the conclusion of my web3 journey. Hopefully, it will take at least five years, and then I can go on exploring other industries like space and longevity or whatever it is, but that's what I want to see.
Adam: Well, thank you again so much for doing this. This is a lot of fun, Sandeep.
Sandeep: Thank you. Thanks, Adam.