Polygon's Hidden Agenda: DraftKings Receives Millions for Failed Validator

• DraftKings' Involvement with Polygon Blockchain Validation
• Polygon's Payment to DraftKings
• Investigating the Financial Arrangements
• The Unusual Case of DraftKings' Validator
• The Delegation of MATIC Tokens
• The Unprecedented Arrangement
• Undisclosed Allocation to DraftKings
• Decline of DraftKings' Validator

DraftKings' Involvement with Polygon Blockchain Validation

In early 2022, DraftKings, a renowned sports-betting company, publicly agreed to serve as a network validator for the Polygon$0.967 -3.65% blockchain. According to on-chain data, Polygon provided DraftKings with millions of MATIC tokens, enabling the validator to achieve significant profit. However, despite receiving payment, DraftKings couldn't maintain its validator's performance and was eventually removed from the network.

Polygon's Payment to DraftKings

Polygon Labs announced in early 2022 that DraftKings would operate one of its network validators. This marked a significant adoption milestone for the company, as it represented the first time a major publicly-traded firm actively participated in blockchain governance. What wasn't disclosed initially was that Polygon compensated DraftKings with millions of valuable MATIC tokens for its services.

Investigating the Financial Arrangements

On-chain data revealed that at the beginning of their strategic blockchain agreement in October 2021, DraftKings received millions of dollars in cryptocurrency directly from Polygon. DraftKings also profited further through a unique staking relationship that few other Polygon network validators enjoyed. This financial relationship was not disclosed by either company.

The Unusual Case of DraftKings' Validator

Being a validator on Polygon's network comes with certain responsibilities. A limited number of entities, such as corporations, staking services and crypto exchanges, can contribute their computing power to the network at any one time. These validators execute the task of verifying transactions and receive automatic rewards in the form of MATIC tokens for their efforts. This is a key aspect of the staking process.

The Delegation of MATIC Tokens

Most validators charge a commission of 5%-10% on the rewards from delegated tokens. However, DraftKings' validator was an exception, charging a 100% commission and not distributing any MATIC tokens as rewards. Consequently, DraftKings' validator grew substantially, with Polygon delegating 60 million MATIC tokens to help increase its staking rewards.

The Unprecedented Arrangement

The arrangement of Polygon delegating such a vast number of tokens to DraftKings, coupled with the deal allowing DraftKings to keep 100% of rewards, was highly unusual. A Polygon Foundation-controlled wallet accounted for nearly 13% of all MATIC tokens staked on the network. Over 50% of these tokens were with validators charging no commission, meaning that Polygon received all the rewards. Only one validator charged 100% commission, and its delegated stake was significantly smaller than what was delegated to DraftKings.

Undisclosed Allocation to DraftKings

Polygon's undisclosed allocation to DraftKings and the validator's almost complete dependence on Polygon contradicts the blockchain company's assertions about the validator being on par with all the others. From November 2022 until mid-October 2023, DraftKings withdrew a total of 3.2 million MATIC, worth just over $2 million at present prices. It had collected more personal rewards than any other validator over that period.

Decline of DraftKings' Validator

It remains unclear why DraftKings allowed its Polygon validator to deteriorate. However, on-chain indicators suggest that the infrastructure relationship between the two companies began to shift just over a year ago. DraftKings kept withdrawing rewards after November 7, 2022, and nearly a year later, in September, its validator began underperforming in its primary duty of maintaining the chain. Eventually, in October, Polygon removed DraftKings from the validator program. Despite this, Polygon's separate NFT deal with DraftKings remains active.

Edited by Jonathan Stoker