Bull vs. Bear: TRON

Dear Bankless Nation,

Few ecosystems are as controversial as Justin Sun's TRON. The L1 platform holds a host of converts and haters, both with a good amount of ammo for their arguments.

Today, we present you with the bull and bear cases for the ecosystem, where Bankless researchers James Trautman and Jack Inabinet take opposite sides of the debate over the future and fortunes of TRON and the TRX token.

Agree or disagree? Take it to the comments!

Let's kick things off with the bear case...

🧸 Bear Case

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TRON’s TVL has certainly been the envy of its competitors, with over $6.7B locked across its various smart contracts, making it the second largest chain by TVL behind Ethereum, but it comes with a high degree of concentration risk.

While nearly 3M unique smart contracts exist on the TRON, 99.9% of this TVL belongs to three protocols controlled by Justin Sun: JustLend, JustStables, and SUN!

To make matters worse, much of this TVL is controlled by a small number of wallets, presenting a risk that a liquidity crisis could ensue on the chain should a single whale suddenly withdraw their funds. While lenders have supplied $2.8B BTC to JustLend, 98.7% of it comes from just three wallets!

Concentration risk is even higher in JustLend’s stUSDT market, where 99.7% of the $1.3B in supplied assets are from a single wallet.

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The discovery is sounding the alarm among institutional traders who now have good reason to be concerned about Huobi’s solvency, seeing as 14% of users’ deposits are reserved by the token.

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- Jack Inabinet

🐂 Bull Case

The bull case for TRON and its native token, TRX, simply boils down to network parameters, its Resource Model, and a deliberate move to burn TRX into oblivion. 

At the end of 2022, committee proposal No. 79 was approved. The results of the proposal changed network parameters (TRON’s Resource Model) and increased the amount of Energy required to execute smart contracts. 

What does this mean?

The Resource Model is based on distributing Bandwidth and Energy to stakers. As long as users have acquired enough “resources,” they can use those resources to transfer tokens and execute smart contracts for free. Otherwise, users must cover transaction fees if they utilize more computing power than their resources.

In other words, when users consume more Energy than owned, they are charged a transaction fee in TRX, which is then burned.

After increasing the amount of Energy required to execute smart contracts, revenue (fees in TRX) to the protocol skyrocketed.

Source: TRONSCAN

Through October 3, 2023 (not even through an entire year), revenue has grown by over 100% compared to the state of the network before its change to the Resource Model at the end of 2022.

Since TRON burns 100% of its revenue (transaction fees in TRX) from the network's circulating supply, it increases scarcity. 

And, with the increased requirements for Energy, transaction fees in TRX have been sparked by users with insufficient Energy, resulting in a substantial amount of TRX burned. 

TRON has burned ~4.3 billion out of its ~92 billion in total supply (~4.7% supply burned) so far this year. For perspective, TRON burned ~1.9 billion TRX in 2022. As such, the deflation of TRX has accelerated.

Ultimately, the Resource Model parameter changes have supported the price of TRX. As it stands, the market cap of TRX has increased ~60% YTD versus the broader market increase of ~35%.

So, what will sustain this bullish trend?

It is widely known that USDT smart contract execution dominates activity on the TRON network. With continued integrations of USDT across TRON DeFi, infrastructure, and CEXs, paired with the launch of stUSDT, this trend is anticipated to continue. Therefore, it should be expected that the changes to the Resource Model will continue to impact the rate at which TRX fees are generated and burned, thereby supporting network value accrual and the price of TRX.

- James Trautman

Action steps

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