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State of TRON Q1 2023

May 9, 2023 ⋅  18 min read

Key Insights

  • TRON’s market cap rebounded this quarter along with the broader market, increasing 18.8% QoQ.
  • The dynamic energy model and increased requirements for energy resulted in greater revenue generation (+65.5% in TRX) and, therefore, the burn of TRX.
  • TRON initiated developments to expand DeFi, including liquid staking and a decentralized resource marketplace.
  • While USDT maintained 95% of the stablecoin value on TRON, there was a notable uptick in TUSD. Meanwhile, the expansion of USDD was uneventful.
  • TRON positioned itself in the AI space by partnering with Oraichain and launching a $100 million AI development fund.
  • The SEC announced several lawsuits, stating that the BTT and TRX tokens were "offered and sold as a security, specifically as an investment contract."

Primer on TRON

TRON is a public open-sourced blockchain network using a Delegated-Proof-of-Stake (DPoS) mechanism. DPoS is an election mechanism that determines who maintains the network. An election occurs every six hours, resulting in 27 Super Representatives who take turns producing blocks.

The TRON Virtual Machine (TVM) powers applications on the network and uses “Energy & Bandwidth” instead of gas, like its Ethereum Virtual Machine (EVM) counterpart. The TVM is EVM-compatible and offers developers affordable smart contract execution.

Key Metrics

Performance Analysis

Network Overview

During Q1, average daily active accounts were down 27.2% QoQ, reversing course after the double-digit percentage increases in Q4. The QoQ decline was partly due to an anomalous spike that skewed averages in Q4. Even excluding that, daily active accounts still experienced significant drops in January and trended downward between the two quarters.

Daily activated (new) accounts were relatively flat QoQ (-4.5%) and resumed a foundational level seen throughout the last year (except for the spike in Q4). During Q1, average new accounts settled in at ~193,000 per day, 12.2% higher than the 12 month average of ~172,000.

On the TRON network, transactions represent all interactions, including token transfers, staking activity, smart contract execution, and voting activity.

Despite the decline in account activity, average daily transactions grew by 7.7% to ~7 million over Q1. The increase can be partially attributed to staking activity on the network. The total transaction count from staking activity grew by 197% QoQ, despite only making up ~3% of all transactions on the network.

Smart contracts triggered and TRX transfers continued dominating transaction activity on the network, making up 88% of all transactions. Activity across both transaction types was relatively flat QoQ. Of the smart contracts triggered, the USD Tether (USDT) smart contract remained the primary driver of contract execution on TRON in Q1.

Another notable change was the increase in transaction fees. During Q1, the average transaction fee in TRX and USD was up 59.2% and 80.2%, respectively.

The increase in transaction fees resulted from committee proposal No. 79, which passed in Q4. The proposal changed network parameters and increased the amount of energy required to execute smart contracts. Further, as part of TIP-474, the dynamic energy model was enabled in Q1 to increase the transaction cost and disincentivize the low-value smart contract transactions that are of without affecting other applications.

As detailed in the State of TRON Q4 2022 report, TRON utilizes a resource model. The resource model is based on distributing bandwidth and energy to stakers. As long as stakers have acquired enough resources, they can use those resources to transfer tokens and execute smart contracts for free. Users must cover transaction fees if they utilize more computing power than their resources. Therefore, it follows that transaction fees would increase after implementing higher energy requirements and the dynamic energy model.

Financial Overview

The Dynamic Energy Model and increased requirements for Energy resulted in greater revenue generation in TRX (total transaction fees paid in TRX), which increased by 65.5% QoQ (+87.7% in USD). Simultaneously, the circulating market cap of TRX increased by 18.1% QoQ.

For perspective, the circulating market cap of TRX was 23x the annualized revenue in USD at the end of Q4 2022 versus 13x at the end of Q1 2023. The movement suggests a more favorable valuation.

Greater revenue translated to a substantial amount of TRX burned, seeing as 100% of transaction fees in TRX are burned. TRON burned ~1.4 billion TRX and generated ~455 million, leading to a deflation rate of ~1% during Q1.

Ecosystem and Development Overview

DeFi

Along with the crypto market relief rally, TVL denominated in USD increased by 18.8% QoQ. However, TVL denominated in TRX declined by 0.5%, suggesting an asset price increase in USD drove TVL rather than new capital inflow.

TRON’s most prominent protocols by TVL JustLend and JustStables, benefited from the market rebound throughout Q1. Both were up QoQ (26% and 21%, respectively), but SUN.io and SocialSwap declined by 65% and 29%, respectively.

Because of the shift in TVL between these top protocols, JustLend's TVL dominance grew for the third consecutive quarter. Further, the TVL in JustLend continued to be dominated by three unique wallets (wallet 1, wallet 2, and wallet 3).

JustLend's dominance (70% of TRON’s DeFi TVL) and wallet concentration could be seen as a risk to TRON. The TRON DeFi ecosystem could face a liquidity crisis if JustLend were to collapse due to an exploit or the major wallets suddenly withdrawing their funds.

With that in mind, TRON initiated developments to expand DeFi beyond JustLend in Q1:

  • Liquid staking will enable users to swap their staked TRX for STRX, increasing the liquidity of staked TRX.
  • Decentralized resource marketplace: After tokenizing staked TRX, users will also get free resources (Energy and Bandwidth). Further, applications will be able to implement a resource leasing mechanism through which users can lease energy and dynamically adjust pricing according to the protocol.

With these standards, liquid staking and the resource-rental markets can be integrated by and potentially expand on other use cases across DeFi.

Stablecoin Landscape

The DeFi landscape is concentrated in a small number of applications primarily used by a few large wallets. Nevertheless, TRON's place in the stablecoin landscape remains substantial. Second, to Ethereum, TRON is ahead of other chains in terms of the market cap of hosted stablecoins. At the end of Q1, it held over $43 billion, up from ~$33 billion (+30%) QoQ.

By the end of Q1, USDT maintained 95% of the stablecoin value on TRON. TRON’s USDT market cap grew by 30% ($10 billion) QoQ, driven by Tether swapping $400 million USDT from ERC-20 to TRON. The amount of USDT on the network could be a concentration risk to the ecosystem should USDT experience any technical or regulatory challenges.

TRON expanded its stablecoin landscape beyond USDT with a significant increase in TUSD. TUSD’s value on the network grew by 420% QoQ to ~$1.3 billion. Two key events may have been the drivers of this growth:

  • Travala - A growing travel application launched support for accepting TUSD in February.
  • Huobi Global - One of TRON’s primary partner exchanges, Huobi announced 0% fees on maker and taker trades on the TRX/TUSD trading pair. The offer was rolled out in March and closely aligned with the increase in TUSD.

Further, just as the Commonwealth of Dominica declared TRON as the official protocol for its national blockchain infrastructure in Q4, a St. Maarten’s parliament member initiated laws to adopt TRON and its native tokens as legal tender in Q1. St. Maarten is the second nation-state in the last six months to initiate such laws, which could continue to drive the use of new and existing stablecoins on TRON.

Other notable developments in the TRON stablecoin space included:

  • Bitfinex - Enabled deposits and withdrawals of offshore Chinese Yuan-pegged Tether Tokens (CNHt) on the TRON network.
  • TCNH - Launched a corporate minting pilot, allowing whitelisted organizations to mint TRON-based stablecoin pegged to offshore Chinese yuan (TCNH) during Q1. TCNH deposits were also enabled on the Huobi exchange, and the TCNH/USDT trading pair went live in February.
  • BitGo - The regulated custody and financial services solution announced support for TRON-based USDT and USDC for hot wallets and qualified custody.
  • Telegram - USDT stablecoin payments launched on Telegram enabling users to send Tether's TRC20-USDT to Telegram contacts. Further, iMe, a messaging platform powered by Telegram, integrated TRX native tokens with its crypto wallet.

USDD

The community aims to continue expanding TRON’s stablecoin landscape by introducing USDD. TRON launched its overcollateralized hybrid-model stablecoin, USDD, in May 2022.

Highlights of the State of USDD through Q1 are as follows:

  • Despite the falling transaction volume of USDD, the number of holders consistently remained above 130,000 in Q1.
  • The on-chain stablecoin reserves for USDD were entirely removed, leaving only BTC and TRX deposits to back the stablecoin. The non-TRX on-chain collateral ratio was 0.55, and the collateral ratio with TRX was 1.54.
  • Despite a volatile quarter for most stablecoins, USDD had one of its least volatile quarters. However, it continued to trade below peg and ended the quarter making up 79% of the USDD/3CRV pool on Curve.

By the end of Q1, ~26% of USDD (down from 28% the prior quarter) was on the Ethereum network and BNB Chain. The TRON network maintained the other ~74% of USDD in circulation. Further, roughly 32% of USDD on TRON was held in JustLend smart contracts, while another 55% was in general accounts (user wallets).

Ultimately, the growth and movement of USDD were relatively uneventful during Q1.

NFTs, GameFi, and Beyond

Although current economic activity revolves around stablecoins and JustLend, TRON DAO continues implementing strategies to grow and diversify TVL across DeFi and beyond. Initiatives such as the TRON Grand Hackathon seasons and the TRON DAO Grants Program aim to support communities, developers, and influencers building on the TRON network.

During Q1, the Grand Hackathon Season 4 was announced. It will distribute 500,000 USDD in prizes to winning development teams across different tracks, including DeFi, Web3, NFT, and GameFi. A “Builders” track was introduced for returning projects that continue development on TRON and BitTorrent. An eco-friendly track was also introduced to incentivize the development of projects related to environmental initiatives.

TRON’s partnership with the Commonwealth of Dominica will seek to develop the Dominica Metaverse, Dominica Digital Identity (DDID), and Dominica Coin (DMC) programs. This move is part of the Commonwealth of Dominica’s push to advance its Web3 infrastructure and digital economy.

Perhaps most notably, was the partnership between TRON and Oraichain. Oraichain is a Layer-1 network purpose-built for decentralized Artificial Intelligence (AI). The partnership aims to enable developers to build advanced AI-powered solutions. Their collective vision is to catalyze AI and blockchain-based applications and deliver AI functionality from Oraichain to the TRON network.

The partnership with Oraichain was announced on the heels of TRON’s launch of its $100 million AI development fund. The fund aims to help developers create applications on the TRON network using emerging AI tools such as OpenAI’s ChatGPT. Collectively, Q1 marked a quarter in which TRON made a deliberate move to expand into the world of AI.

Development Activity

Developer engagement has yet to catch up to TRON's growth strategy. Data sources tracking the events in TRON's GitHub repository can give insight into the current state of developer involvement. According to Electric Capital's Developer report, full-time TRON developers are relatively small in number but have remained stable at 16 over the last year.

TRON aims to grow its developer community through its continued seasons of Grand Hackathons and strategic funds like the AI development fund and the $1 billion TRON DAO Ecosystem Fund.

Staking and Decentralization Overview

As mentioned, the Resource Model is based on distributing Bandwidth and Energy to stakers. The stakers can then use those resources to transfer tokens and execute smart contracts for free so long as they have acquired enough resources. If they don’t enough resources, users must cover transaction fees.

With the rise in Energy requirements in December, the average amount of stake for Energy increased by 37.8% QoQ. As mentioned above, staking transactions increased 197% QoQ.

On the other hand, the average amount of stake for Bandwidth decreased by 4.2%, potentially implying that users unstaked for Bandwidth to stake for Energy. Altogether, total stake decreased 0.9% QoQ.

TRON employs a unique consensus mechanism, which is detailed in the Q3 2022 report. In summary, TRON utilizes a Delegated-Proof-of-Stake (DPoS) mechanism to aid in consensus and validating blocks. Block validation is performed by a group of validators called Super Representatives (SRs), which are elected from a larger pool of SR candidates. The top 27 most-voted candidates become the SRs for the next epoch.

There may be concerns about the having the same 27 SRs participating in securing the network. But, at the end of Q1, over 390 SR candidates (up from ~380 in Q4) received votes. The growing number of SR candidates should challenge the voting population to distribute votes to new candidates.

Although a democratic voting system for block production and a growing set of SR candidates may be beneficial, they don't fully do away with centralization risks. Metrics such as the geographic diversity of nodes may also factor into a network’s level of centralization.

Many Layer-1 networks struggle with the geographical concentration of their nodes. Too many nodes in the same location could jeopardize the health of a network due to geopolitical risks, regulations, and acts of nature, among other reasons.

As of March 31, TRON nodes were distributed across more than 30 geographic locations around the globe, with the highest concentration in China (~20%).

Qualitative Analysis

Key Events, Catalysts, and Strategies for Ecosystem Growth

Aside from the ecosystem developments mentioned above, other aspects of TRON’s strategy pushed forward through Q1, spearheaded by three strategic elements:

  • Technical developments — Evolve network architecture and improve functionality.
  • User access and experience — Attract users with improved user access and experience.
  • Community — Attract developers and drive adoption through community building.

Technical Developments

TRON continued to build onto the Great Voyage network during Q1.

TRON client GreatVoyage-V4.6.0 (Aristotle) was released in January. This mandatory release added a new API for energy estimation, enabled the libp2p library as a Java-Tron network module, and implemented the following TRON Improvement Proposals (TIPs):

  • TIP-467 (Stake 2.0) - This new staking mechanism implemented a new layer to separate low-frequency staking operations and high-frequency resource delegating operations, support resource re-delegating without unstaking, and improved resource utilization.
  • TIP-474 (Dynamic Energy Model) - Increased the transaction cost of low-value and fraudulent transactions without affecting other applications.

TRON client GreatVoyage-V4.7.1 (Sartre) was released in February. This release optimized light node detection and removed inefficient APIs for Solidity added by Stake 2.0. It also changed the default IP of the node to solve an address verification error in the UDP message.

Finally, committee proposal No. 82 was approved in January. This proposal modified the network parameter from proposal No.69 to increase the execution speed of the reward calculation related transactions.

User Access and Experience

Access to the network improved significantly during Q1 with several integrations, including those with:

  • Blockbank - A non-custodial crypto banking app that enabled TRX, USDD, and BTT transactions and integrated its DeFi wallet with TRON DeFi applications.
  • Zaif - Japanese exchange that enabled TRX trading during Q1.
  • Fireblocks - Platform for managing day-to-day digital asset operations that integrated with TRON DeFi applications.
  • Uphold - A multi-asset digital trading platform that integrated self custody of TRX.
  • Coins Pro - A fiat and crypto e-wallet in the Philippines that launched support for TRX and TRC-20 USDT.
  • Onramp - A platform for converting fiat to crypto, enabled TRC20- USDT transactions and self-custody.
  • Huobi - Completed its integration of TRC20-BTC, enabling users to deposit and withdraw BTC on the TRON network. Further, Huobi announced its plans to join the BitTorrent ecosystem and build a “super network” whereby the exchange will integrate with BitTorrent and link Ethereum, TRON, and BNB Chain.

Community

In addition to community engagement efforts by the Grand Hackathons, another move to build community came with the launch of the TRON Climate Initiative (TCI). TCI is a competition for community members and organizations to participate in developing ways to reduce the environmental impact of the blockchain industry. The Research Paper Competition was launched as a first step in that direction and was designed for students who want a way to contribute, but it is open to everyone who wants to participate.

Following the launch of TRON Academy in Q4, which was adopted by seven universities with blockchain clubs, including Cornell, Princeton, and Dartmouth, TRON Academy sponsored the Princeton blockchain club.

Ecosystem Challenges

Despite TRON's progress toward its long-term goals and continued adoption, the network faced some challenges in Q1.

On March 22, 2023, the SEC announced it was charging "Justin Sun and three of his wholly-owned companies, TRON Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT)." The SEC also charged Sun and his companies for "fraudulently manipulating the secondary market for TRX through extensive wash trading," and for "orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation." The SEC further stated that the BTT and TRX tokens were "offered and sold as a security, specifically as an investment contract."

For clarity, Justin Sun, three of his wholly owned companies, and TRON are separate entities — the former is a group of centralized entities, and the latter is an evolving network and ecosystem. However, Justin Sun and the wholly owned companies did help grow the TRON ecosystem through investment and project launches. While the suit's outcome is still pending, a negative result could slow the advancement of the TRON ecosystem.

The Road Ahead

TRON does not have a public-facing roadmap regarding its development. However, the team regularly makes announcements regarding plans. Much of the road ahead continues to reflect what the TRON ecosystem has already been working on for several quarters.

TRON's documentation suggests the ecosystem's original 10-year roadmap has three key integrations on the horizon: Apollo, Star Trek, and Eternity. TRON continues to build onto the current Great Voyage network, and over the near term, "Stake 2.0" paired with liquid staking will likely provide greater flexibility and improve resource utilization. Moreover, the implementations of Apollo, Star Trek, and Eternity are aimed at continuing to improve network functionality.

Beyond technical developments, TRON DAO and the community will continue to push ecosystem growth forward, with plans to further expand USDD. With the support of the TRON DAO Ecosystem Fund and all of its affiliated initiatives, the TRON community continues to reinvest in its ecosystem to bring on more developers, applications, and users.

Closing Summary

While market sentiment shifted and a relief rally ensued in Q1, TRON account activity subsided. Though account activity slowed, power users remained on the network as transactions grew QoQ. The Dynamic Energy Model and increased requirements for Energy resulted in greater revenue generation and, therefore, the burn of TRX.

TRON initiated developments to expand DeFi beyond JustLend in Q1, including liquid staking and a decentralized resource marketplace.

USDT maintained 95% of the stablecoin value on TRON, but the network saw a notable uptick in TUSD. Meanwhile, the expansion of USDD was uneventful.

TRON looks to expand its ecosystem beyond DeFi and stablecoins, as it doled out continued investments from the TRON DAO Ecosystem Fund and its Grand Hackathons. During Q1, TRON positioned itself in the AI space by partnering with Oraichain and launching a $100 million AI development fund.

Despite TRON's progress toward its long-term goals, Q1 presented some challenges. The SEC announced several lawsuits and stated that the BTT and TRX tokens were "offered and sold as a security, specifically as an investment contract." A negative result could slow the advancement of the TRON ecosystem.

Despite these challenges, TRON looks to remain competitive and continue its growth strategies to expand DeFi, stablecoin adoption, and other use cases, including AI, through 2023.


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James believes that the future of finance and economics will be algorithmic, decentralized, and distributed efficiently on a global scale. He is a Research Analyst with Messari focusing on Layer-1 protocols and previously held traditional finance positions at Northwestern Mutual and U.S. Bank. James also has experience as an analyst at research firms like Morningstar.

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About the author

James believes that the future of finance and economics will be algorithmic, decentralized, and distributed efficiently on a global scale. He is a Research Analyst with Messari focusing on Layer-1 protocols and previously held traditional finance positions at Northwestern Mutual and U.S. Bank. James also has experience as an analyst at research firms like Morningstar.

Mentioned in this report