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SEC Sues Tron Founder Justin Sun for Securities Violations: A Closer Look at Tron Network and TRX Token

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TL;DR

  • Justin Sun, the founder of Tron network, has been charged by the SEC for selling unregistered crypto asset securities and fraudulently manipulating TRX's secondary market through wash trading
  • TRX is the native cryptocurrency of the Tron Network and is used to pay for transactions, incentivize block producers, and as a means of exchange on the Tron Network
  • The Tron ecosystem includes a DEX, blockchain explorer, wallet, decentralized oracle, lending platform, and DApps

On March 22, the U.S. Securities and Exchange Commission (SEC) charged Justin Sun, the founder of the Tron network, with the offering and sale of unregistered crypto asset securities, as well as fraudulently manipulating TRX's secondary market through extensive wash trading.

Following the news, the Tron network's native TRX token dropped 13% from 6.7 cents to 5.8 cents on that day.  As of press time, TRON's live price is $0.06 USD with a 24-hour trading volume of $280,710,173 USD. TRON has climbed by 0.46% in the last 24 hours, according to Cointime.

This week, we will take a closer look if the TRX itself and Tron, the blockchain platform that hosts this cryptocurrency.

What is Tron Network?

The Tron Network is a decentralized platform that aims to create a global digital entertainment ecosystem.

Tron was founded by Justin Sun in 2017 and is built on the Ethereum blockchain. Later, Tron moved to its own blockchain network called the Tron Mainnet, which was launched in 2018.

It uses blockchain technology to allow content creators to connect directly with their audience, without the need for intermediaries such as YouTube or Spotify. Tron aims to provide a decentralized platform for content creation and sharing, gaming, and social media.

Tron is built on a delegated proof-of-stake (DPoS) consensus mechanism, where token holders vote for block producers who are responsible for validating transactions and adding new blocks to the blockchain. The Tron Network also supports smart contracts, allowing developers to create decentralized applications (DApps) on the platform.

About Tron Ecosystem

The Tron ecosystem includes a DEX, blockchain explorer, wallet, decentralized oracle, and lending platform. Smart contracts are executed on the Tron network using the Tron Virtual Machine, which has a three-layer architecture to distribute resources among TRX holders.

  • Tron Mainnet: The main blockchain network that supports the Tron ecosystem.
  • Tron Wallet: A mobile wallet that allows users to store and manage their TRX tokens.
  • TronLink: A browser extension that allows users to access and interact with DApps on the Tron Network.
  • TronScan: A block explorer that allows users to view and search for transactions on the Tron Network.
  • DApps: Decentralized applications built on the Tron Network, including games, social media platforms, and marketplaces.

What is TRX Token

TRX is the native cryptocurrency of the Tron Network. It is used to pay for transactions on the network and to incentivize block producers. TRX is also used as a means of exchange on the Tron Network, allowing users to purchase goods and services on DApps built on the platform.

The maximum token supply of TRON (TRX) is 100 billion. According to Cointime, the current circulating supply of TRX is 91.12 billion. This is the total amount of TRX that is available.

How Does TRX Token Work?

TRX token is a utility token used within the Tron Network. It is used to pay for transaction fees, smart contract execution, and as a means of exchange on the Tron Network.

  • Firstly, TRX tokens can be used to pay for transaction fees, smart contract execution, and as a means of exchange on the network. When a user sends a transaction on the Tron Network, a small fee is charged in TRX tokens, which is paid to the block producers who validate and add the transaction to the blockchain.
  • TRX tokens can also be used to participate in the Tron Network's governance, where token holders can vote for block producers and participate in decision-making on network upgrades.
  • Moreover, TRX tokens can be used to incentivize users to participate in the Tron Network's ecosystem. Some DApps offer rewards to users who complete certain actions, such as sharing content or completing a game, which is often paid in TRX tokens.
  • Additionally, TRX tokens can be used as a means of exchange on the Tron Network, allowing users to purchase goods and services on DApps built on the platform.

Why SEC Considers TRX a Security?

The regulator alleged that TRX and BTT are unregistered securities, and claimed Sun created an "extensive wash trading" program to boost their trading volume.

According to the SEC's complaint, Justin Sun and his companies offered and sold Tronix (TRX) and BitTorrent (BTT) as investments through multiple unregistered "bounty programs" and monthly airdrops, which violated Section 5 of the Securities Act. 

The SEC considers the TRX token and BitTorrent token to be securities, and as such, any offer or sale of those securities must comply with the registration requirements of the Securities Act of 1933 before they can be offered or sold to the public.

Under the Howey Test, a landmark case used to determine whether an investment is a security, an investment contract exists when there is (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profits, (4) primarily from the efforts of others. The SEC alleges that the TRX token and BitTorrent token meet these criteria and are therefore securities.

The "bounty programs" and monthly airdrops of TRX token involved the distribution of tokens in exchange for certain actions, such as promoting the tokens on social media or recruiting others to join Tron-affiliated Telegram and Discord channels. These actions were designed to create demand for the tokens and increase their value, which would result in profits for investors who held the tokens.

In addition, Justin Sun allegedly orchestrated a scheme to artificially inflate the apparent trading volume of TRX in the secondary market through extensive wash trading. He directed his employees to engage in more than 600,000 wash trades of TRX between two crypto asset trading platform accounts he controlled, which allegedly inflated the apparent trading volume of TRX in the secondary market.

~ By Lu Tian

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