Tron (TRX) Guide

Tron originally launched to democratise the sharing and monetisation of digital content by removing intermediaries between creators and their audience. However, it subsequently pivoted to build a decentralized internet and expanded its scope to support a broader range of use cases, including decentralised finance (DeFi) and play-to-earn gaming. Tron attempted to differentiate the protocol by initially pursuing a go-to-market strategy focusing on Asia (heavily promoting its Chinese founder) and adopting a delegated proof of stake consensus mechanism to boost scalability.    

Key Figures

History

Justin Sun founded the Tron Foundation in 2017 to support the development and adoption of the Tron blockchain. Previously, Sun served as Ripple’s lead developer in China and founded Peiwo, a social audio app sometimes compared to Snapchat that grew to 10 million users. He famously bid $4.5 million to win Warren Buffett’s annual charity auction in 2019, which entitled him to dinner with the Oracle of Omaha. Buffett had expressed skepticism about cryptocurrencies, so Sun seized on the opportunity to try to change his mind, inviting guests from the Web3 community including Charlie Lee, the founder of Litecoin.

The foundation held an initial coin offering (ICO)- crypto’s version of a public listing- in 2017, shortly before they were banned by Chinese authorities. Tron used the funds to launch a testnet (a testing environment for the blockchain) in March 2018, followed by its mainnet (the live version) two months later. The Tron Foundation dissolved in 2021 after transferring control of the blockchain to TRONDAO, a community-led governance structure known as a decentralised autonomous organization, which assumed responsibility for maintaining the network and growing the ecosystem.  

Tron issued its native token, TRX, using the ERC-20 standard on Ethereum before migrating it shortly after the mainnet went live. TRX’s utility stems from its use as a payment method for decentralised apps built on Tron, while holders can also stake it to participate in the consensus mechanism (see below). One way Tron differs from other protocols is it doesn’t charge transaction fees, like Ethereum’s gas fees. Instead, each user receives 5,000 free bandwidth points every day, which they can use to cover the cost of transactions. If users run out of points, they can use TRX. For instance, opening a new account costs 0.1 TRX.  

After spiking following the ICO, TRX traded in a range between two and three cents until early 2021, when it rallied as DeFi apps gained traction. Tron was strongly positioned to capitalise on this trend having introduced its non-fungible token standard, TRC-721, at the end of 2020. The latest bull market started in the summer of 2023, with recent catalysts including the launch of the SunPump platform for issuing meme coins (tokens inspired by internet memes) and a legal victory giving Sun and Tron more time to mount a defence against the Security and Exchange Commission’s charge that TRX is an unregistered security.

Tron has grown to become one of the biggest blockchains by total value locked (TVL), a metric used by the crypto community to measure the amount of funds deposited by users in DeFI apps. According to DefiLlama, as of 11 December 2024, it ranks 3rd with $7,812 billion TVL, although it trails Ethereum ($74,09 billion) by a considerable distance. Some of the most popular apps built on Tron include lender JustLend ($6,44 billion TVL as 11/12/2024) and DeFi platform Sun ($922,73 million TVL). The protocol also launched a stablecoin in 2022 called USDD, which has a current market capitalization of $743 million.

Protocol

The consensus mechanism used by Tron to validate transactions and secure the network is called delegated proof of stake (DPoS). Introduced in 2014 by blockchain architect Dan Larimer, DPoS is a variation of the proof of stake mechanism used by some of the most established protocols including Ethereum, Cardano and Polkadot.

To participate, holders freeze TRX and receive TRON power tokens which grant the right to vote for the validators they believe should process transactions, known as super representatives (SRs). Elections consist of 127 candidates and take place every six hours. The top 27 become SRs and earn voting and block rewards, while the rest of the candidates earn a portion of the voting rewards.

As mentioned in its whitepaper, the block reward is 16 TRX (worth $4.48 as of 11 December 2024), which the network issues when a new block is created roughly every three seconds. It also pays out a vote reward of 160 TRX (worth $44.8 as of 11 December 2024 ) after each election, which all 127 candidates share in proportion to how many votes they receive.

Limiting the number of validators (SRs) accelerates the achievement of consensus. Analytics platform Chainspect ranks Tron 3rd in terms of transaction speed, processing 127 transactions per second (TPS) as of 11 December 2024, much faster than both the Ethereum (15.47 TPS) and Bitcoin networks (4.74 TPS). Tron’s approach also encourages participation in the consensus mechanism because it doesn’t require a minimum stake (unlike Ethereum which requires 32 ether), meaning anyone can become a SR.  

The other participants that contribute to maintaining the network include:

• Witness nodes, which propose new blocks of transactions to be added to the chain and vote on changes to the protocol

• Full nodes store a complete record of all transactions processed on Tron

• Solidity nodes sync block data across full nodes

CoinShares Analysis

Strengths

Stablecoins like USDT are essential to the digital asset industry, offering an alternative to fiat and enabling smooth fund transfers across platforms. With a market value of over $138 billion (as of 11 December 2024), USDT is a significant part of the stablecoin industry and heavily relies on the TRON blockchain, since approximately 44% of its supply is running on it. 

Weaknesses

TRON has a reputation for being untrustworthy, particularly in America and Europe, though its perception may differ in Asia. Its primary use case is USDT stablecoin transfers, which appear to be diminishing, and the platform has very few well-regarded applications.

Opportunities

TRON has the opportunity to overcome its reputation through its partnership with TRM Labs and Tether to identify transactions linked to alleged illegal activities such as terrorism, sanctions evasion, theft, hacking, cybercrime, and fraud. Such efforts could spur innovation and attract new investment.

Threats

Ethereum has eroded TRON’s USDT market share, overtaking it on November 21. If Ethereum consolidates its position, TRON may experience reduced activity, usage, and overall relevance in the blockchain ecosystem.