As revealed by blockchain data, despite publicly claiming equality in the validator community, the crypto project favoured DraftKings with preferential treatment.
In early 2022, Polygon Labs celebrated an “important adoption milestone” as DraftKings took on a network validator role—a groundbreaking move by a major publicly-traded firm in blockchain governance. However, undisclosed at the time was Polygon’s provision of unusually lucrative terms for this role. Twenty months later, Polygon has incurred substantial losses subsidizing a validator that has since failed. CoinDesk delved into on-chain records and interviewed insiders to unveil the previously unreported financial arrangement between the companies in Polygon’s validator program.
In October 2021, on-chain data unveils that as part of their “strategic blockchain agreement,” Polygon directly provided DraftKings with millions in crypto, involving 2.5 million MATIC tokens. The financial dynamics of this initial transaction remain unclear. Subsequently, DraftKings garnered additional millions through an exclusive staking arrangement, a benefit not extended to most other validators on the Polygon network. Both companies chose not to disclose these financial ties.While Web3 companies commonly pay mainstream brands for involvement in their crypto ecosystems, they often avoid discussing the expenditures behind cultivating an image of mainstream adoption. The revealed on-chain data detailing Polygon’s distinct treatment of DraftKings offers a rare insight into such arrangements.Polygon and DraftKings representatives declined to divulge details about the financing of the validator deal, citing confidentiality agreements. Contrary to being an “equal community member” among Polygon’s 100 validators, as described by a Polygon executive, DraftKings, per blockchain data, received disproportionate compensation for its “active role in blockchain governance” and failed to fulfill its end of the agreement.
DraftKings’ Polygon validator operates within the responsibilities of a network validator, where a limited number of entities contribute computing power. These entities, including corporations and crypto exchanges, verify transactions and receive MATIC, Polygon’s cryptocurrency, as staking rewards. Validators stake MATIC as collateral, earning additional rewards based on the amount staked. DraftKings’ unique approach involved a 100% commission, contrasting with the typical 5%-10% commission charged by most validators. Delegators, like Boris Mann, missed out on rewards due to the high commission, highlighting the unconventional nature of DraftKings’ validator. Despite concerns, Polygon delegated a substantial amount of MATIC to DraftKings, contributing to its significant growth within the Polygon network.
Polygon Special Relationship with DraftKing
Polygon’s undisclosed allocation of tokens to DraftKings, coupled with the validator’s heavy reliance on Polygon, contradicted the blockchain company’s portrayal of DraftKings as an equal community member. Despite Sandeep Nailwal’s assertion in a March 7, 2022 press release that DraftKings would function as a decentralized community-run consensus network, there was no mention of Polygon’s substantial token delegation strategy.
Initially allocating 10 million MATIC for the validator, Polygon eventually delegated 60 million MATIC, revealing a significant undisclosed relationship. From November 2022 to mid-October 2023, DraftKings withdrew 3.2 million MATIC, valued at over $2 million. This substantial reward accumulation, outpacing other validators, was made possible by Polygon’s extensive delegation. Without the 60 million MATIC tokens, data from validator.info suggests DraftKings might have earned only 4% of its actual rewards.
However, DraftKings’ substantial earnings had repercussions for other stakers in Polygon’s ecosystem. Approximately 80% of the delegated tokens came directly from the foundation, not previously staked, diluting the overall rewards available to other participants in the network.
