From messari by AJC

Key Insights

Primer on TRON

TRON (TRX) is a public open-sourced blockchain network using a Delegated-Proof-of-Stake (DPoS) mechanism. It utilizes an election mechanism that determines who maintains the network. All TRX stakers vote onchain on which candidates they want to become Super Representatives. In each epoch, the top 27 most voted-for candidates become Super Representatives within the active set and take turns producing blocks. An election occurs every six hours.   

The TRON Virtual Machine (TVM) powers applications on the network and uses “Energy” and “Bandwidth” instead of gas, like its Ethereum Virtual Machine (EVM) counterpart. Bandwidth is gas spent on transactions whereas Energy is gas spent on smart contract calls. Energy and Bandwidth can be acquired by staking TRX or by burning TRX to pay for the Energy/Bandwidth required to execute a smart contract call or transaction. The TVM is EVM-compatible and offers developers affordable and fast smart contract execution.

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Key Metrics

Financial Overview

Market Cap and Revenue

TRX’s circulating market cap increased again in Q1, marking five straight quarters of QoQ gains. By the end of Q1, TRX’s market cap had increased to $10.7 billion, up 15% QoQ from $9.4 billion. However, TRX’s market cap amongst all tokens (excluding stablecoins) fell 4 spots from 10 to 14. Despite this underperformance relative to other large-cap tokens in Q1, TRX had impressive YoY gains, up 82% YoY from $5.9 billion. Additionally, since TRX is a deflationary token, its price increased by more than just the circulating market cap due to a decrease in circulating supply.

TRON utilizes a resource model to execute transactions onchain. To summarize, 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 with TRX if they utilize more computing power than their resources. Furthermore, all TRX used to pay transaction fees is burned. As such, revenues for TRON are derived from the TRX token burns coming from transaction fees.

After setting a record quarter in terms of USD revenue in Q4, TRON USD revenue set a new all-time high in Q1, increasing 7% QoQ from $119.4 million to $128.1 million. The month of March was particularly impressive as 398.5 million TRX ($51.5 million) was burned, a monthly record in USD terms. Revenue in TRX was slightly down, falling 14% QoQ from 1.2 billion to 1.0 billion. TRON ranked #3 across all networks in fee generation in Q1. The only networks with more fees in Q1 were Ethereum ($1.2 billion) and Bitcoin ($291 million).

Supply Dynamics

The circulating supply of TRX is affected by two parameters: TRX that is burned and TRX that is rewarded. All transaction fees paid in TRX are burned, leading to deflationary pressure on the supply of TRX. Additionally, new TRX enters the circulating token supply as rewards for stakers and block producers. These rewards work out to roughly 5.06 million TRX minted per day. Therefore, the circulating supply of TRX will decrease over time as long as more than 5.06 million TRX is burned daily.

As previously mentioned, TRX is one of the few deflationary Layer-1 network tokens. In Q1, the supply of TRX decreased from 88.2 billion to 87.7 billion. After annualizing this decrease in circulating supply, TRX has an annualized inflation rate of -2.6%. Annualized inflation was up QoQ, increasing 21% from -3.4%.

New TRX is minted as rewards for stakers and block producers. TRON incentivizes participants in its staking mechanism through a combination of the following:

The annualized real yield for staking decreased in Q1, down 10% QoQ from 7.8% to 7%. This decrease in real yields was due to less TRX being burned in Q1.

Network Overview

Usage

Average daily transactions were essentially flat in Q1, down 1% QoQ from 4.9 million to 4.8 million. Notably, average daily transactions were still below levels from last year (7.1 million average daily transactions in Q1’23). Additionally, average daily active address activity remained flat over both the past year and quarter. Q1 averaged 1.5 million active addresses daily, up 4% QoQ.

After two quarters of decline, average daily new addresses increased by 2% QoQ in Q1, from 184,500 to 187,800. Approximately 12% of all active addresses in Q1 were new addresses, which was flat QoQ. Over the past year, TRON has had roughly 195,000 new addresses per day.

TRX transfers and USDT transactions continue to represent the bulk of transactions on TRON, combining for over 76% of transactions in Q1. However, both individual categories saw a slight QoQ decrease in daily average transactions. TRX transfers were down 1% QoQ to 1.9 million, and USDT transfers were down 1% QoQ to 1.8 million. “Other” transactions had the biggest QoQ increase, up 5% QoQ to 842,100 average daily transactions. “Other” transactions include account creation, SR account creation, account permissions update, proposal initiation, and other non-smart contract interactions on the network.

Wallet transfers and stablecoins dominated average daily active address activity. An average of 1 million addresses conducted a wallet transfer per day (+5% QoQ), representing 65% of daily active address activity. As for stablecoin transactions, an average of 557,800 addresses conducted a stablecoin transaction per day (-2.5% QoQ), representing 37% of daily active address activity. The two categories with the biggest QoQ growth in percentage terms were CEX (37,200 average daily active addresses) and DeFi (2,000 average daily active addresses), up 93% and 31% QoQ, respectively.

Security and Decentralization

TRON uses a Delegated Proof-of-Stake (DPoS) election mechanism and the Practical Byzantine Fault Tolerance (PBFT) consensus algorithm to secure the network. A DPoS election occurs every six hours, in which 27 Super Representatives (SRs) take turns producing blocks. Those who wish to run a node on TRON can pay 9,999 TRX to become an SR candidate.

There may be centralization concerns about having only 27 SRs participating in securing the network. But, at the end of Q1, over 412 SR candidates (up from 400 in Q4’23) received votes. The growing number of SR candidates should challenge the voting population to distribute votes to new candidates. Additionally, no singular entity received more than 10% of all votes. The entity with the most votes is Binance Staking, which received 4.3 billion votes out of 44.5 billion votes in the most recent election (9.8% of all votes).

Although a democratic voting system for block production and a growing set of SR candidates may be beneficial, neither one fully does 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 Q1 end, 7,386 TRON nodes were distributed across 79 different geographic locations around the globe, with the highest concentration in Europe (~39%).

To stake TRX on TRON, users can choose between Stake 1.0 and Stake 2.0. The new staking mechanism, Stake 2.0 (TIP-467), went live in April. It implemented a new layer to separate low-frequency staking operations and high-frequency resource delegating operations. Stake 2.0 also introduced resource re-delegating without unstaking and improved resource utilization. Of note, all newly staked TRX is staked via Stake 2.0, but any TRX previously staked via Stake 1.0 remains valid.

Across both staking options, the staking ratio (the proportion of TRX’s total supply actively being staked) essentially remained the same, decreasing slightly to 52% in Q1. Additionally, more users continued to switch to Stake 2.0 over 1.0 in Q1. Stake 2.0 ended the quarter with 14.8 billion TRX staked (+3% QoQ), whereas Stake 1.0 finished with 30.8 billion TRX staked (-3% QoQ). In sum, 45.7 billion TRX was staked at the end of Q1, a decrease of 1% QoQ. In USD, however, total staked was up 15% QoQ from $4.9 billion to $5.6 billion. Compared to other PoS networks, TRON had the tenth-highest dollar value of funds staked by the end of Q1.

In order to take over the network through a two-thirds attack, a malicious actor would need to control 18 of the 27 SRs, or essentially two-thirds of the total stake. At the end of the quarter, this threshold was 30.5 billion TRX ($3.7 billion).

Bandwidth is the gas spent on transactions while energy is the gas spent on contract calls. Users can stake TRX to acquire either resource accordingly:

The vast majority of TRX in Q1 was staked for bandwidth. Notably, the amount staked was down 2% QoQ from 39.8 billion to 38.9 billion. As for energy, staking increased 8% QoQ from 6.2 billion to 6.7 billion. The amount staked for each resource is correlated with consumption. Daily bandwidth consumption was down 1% QoQ from 1.5 billion to 1.4 billion while daily energy consumption was down 1% QoQ from 77.7 billion to 77.0 billion.

Technical Developments

In the latter half of Q1, TRON mainnet was upgraded to GreatVoyage-V4.7.4 (Bias). Bias is a mandatory upgrade that aims to simplify user-node interactions by supporting gRPC reflection service and the use of the gRPCurl tool for interface calls. The Bias version plans to reduce the complexity of TRON core protocol development. It introduces clearer module dependencies by restructuring Gradle dependencies to eliminate duplicate statements. Additionally, the update seeks to enhance the network's consensus stability and throughput performance. Notably, it includes improvements in the speed of vote reward withdrawals, facilitated by an optimization initiative (TIP-635), which is expected to enhance the network's transaction processing speed (TPS).

Additionally, on March 19, Amazon Web Services (AWS) integrated with the TRON network, allowing a full TRON node to be run easily on AWS. Through this partnership, launching a full node on TRON can be done in just a few clicks.

Ecosystem Overview

DeFi

TVL on TRON eclipsed the eleven-figure mark in Q1, rising by 25% QoQ from $8.1 billion to $10.1 billion. By the end of Q1, TRON remained the second-highest network by TVL, edging out third-place BNB Chain ($7.2 billion) by just under $3 billion. Furthermore, TVL denominated in TRX also saw a QoQ increase, up 8% from 76.4 billion to 82.5 billion. This dynamic indicates that both TRX price appreciation and capital inflows drove the TVL increase in USD.

The top three protocols by TVL on TRON are JustLend, JustStables, and SUN. JustLend, the largest protocol by TVL, grew 20% QoQ from $6.5 billion to $7.8 billion ($1.3 billion increase). Of this increase, $16.2 million was driven by borrows (1% of the QoQ increase). The majority of JustLend’s TVL gains in Q1 were driven by price appreciation and the growth of supplied assets on the protocol. By the end of Q1, JustLend’s TVL dominance was 77% (down 4% QoQ).

JustStables, a collateralized debt position (CDP) protocol, had a TVL increase of 16% QoQ (up $190.5 million to $1.4 billion). All TVL on JustStables is in the form of TRX tokens. Additionally, the amount of TRX deposited on JustStables essentially remained flat QoQ (11.6 billion TRX), meaning that the TVL increase was due to the price appreciation of TRX.

SUN had an impressive Q1, growing its TVL from $390.6 million to $583.7 million, a 49% QoQ increase. SUN consists of three different AMMs (V1, V2, and V3). By the end of Q1, V1 TVL was $319.7 million (55% of TVL), V2 TVL was $136.4 million (23% of TVL), and V3 TVL was $107.7 million (18% of TVL). Additionally, SUN’s TVL dominance increased to 6% (up 20% QoQ). In sum, JustLend, JustStables, and SUN represented 97% of DeFi TVL on TRON.

Finally, a Bitcoin re-staking project, BounceBit, launched a farming project on multiple chains in Q1 (Points Paradise). By quarter end, this farm had attracted $314.6 million in deposits on TRON.

Onchain activity has been elevated across most networks due to the recent “Memecoin Mania” and the resurgence of a bull market, and TRON was no exception. DEX volumes on TRON had their biggest QoQ increase in over a year. The average daily DEX volume increased 142% QoQ from $11.3 million to $27.2 million. More specifically, the month of March ($1.2 billion) had the highest DEX volumes on TRON of any month since June 2022 ($1.9 billion).

Essentially all DEX volumes on TRON occur on SUN. In June 2023, SUN introduced a concentrated liquidity (CL) AMM to its product suite (SunSwap V3). Q1 marked the first time since SunSwap V3’s introduction that the majority of volume on SUN was routed through the V3 AMM. In Q1, SunSwap V3 accounted for $1.6 billion in volume, approximately 64% of all DEX volume on TRON in Q1 ($2.5 billion).

Stablecoins

Q1 marked another strong quarter of performance from stablecoins on TRON. Stablecoin market cap increased 8% QoQ from $49.3 billion to $53.1 billion. USDT accounts for the vast majority of stablecoins on TRON, boasting a market share of 98% (up 4% QoQ from 94%). The market cap of USDT on TRON eclipsed the $50 billion mark in Q1, ending the quarter at $52.1 billion (up 12% QoQ from $46.3 billion). Additionally, approximately 53% of all USDT in circulation is on TRON.

The only other stablecoin with a QoQ increase was USDD (up 3% QoQ to $725.9 million). USDC was down 48% QoQ from $282.7 million to $148.5 million. This drop came after Circle announced it would no longer be issuing new USDC on TRON. USDC holders on TRON can transfer until February 2025.

RWAs

TRON announced the launch of its first real-world asset (RWA) platform, stUSDT, in Q3. stUSDT is a receipt token that users will receive upon staking USDT. USDT staked in the stUSDT-RWA contract will be allocated to real-world assets such as high-grade short-term government bonds. Users will then receive continuous yield from those assets through a rebase mechanism, which automatically increases the amount of stUSDT in a user’s wallet to reflect their share of the generated yield.

After reaching over $2 billion in TVL in Q4, stUSDT TVL on TRON saw a decrease in Q1, down 39% QoQ to $1.3 billion. Despite this decrease, stUSDT joins Maker RWA and Ethena as the only RWA protocols with over $1 billion in TVL. Lastly, as of March 31, over $48 million in yield has been rewarded from stUSDT on TRON, with a reward rate of 3.22%.

Ecosystem Growth

TRON DAO continues implementing strategies to grow the ecosystem beyond stablecoins, with initiatives such as the TRON DAO Grants Program, a $100 million AI development fund, and the TRON Grand Hackathon seasons.

During Q1, TRON DAO kicked off Grand Hackathon Season 6. Season 6 features a prize pool of $650,000 and five different tracks (Web3, Artistry, DeFi, Builder, and Integration). Applications are open until May 7, and top-tier sponsors include Ankr, ChainGPT, and AITECH.

One of TRON’s major initiatives for Q1 was to continue expanding into the Bitcoin ecosystem. On February 15, Justin Sun announced that TRON will be developing a Bitcoin Layer-2 solution. The goal of the Layer-2 solution is to create a secure way for the Bitcoin ecosystem to access TRON’s pool of stablecoin capital ($53.1 billion by Q1 end). The roadmap for TRON’s Bitcoin Layer-2 solution has three parts:

Closing Summary

Over the past year, TRON’s success has boiled down to consistent quarter-over-quarter growth in key areas and metrics. For the second straight quarter, TRON’s revenue in USD hit an all-time high ($128.1 million), a testament to the success of TRON’s network. Because of TRON’s revenues, TRX is one of the few deflationary network tokens in crypto, as seen in its market cap increasing QoQ over the past year.

‘The success of TRON and the growth of USDT go hand-in-hand. By the end of Q1, USDT on TRON reached a market cap of $53.1 billion, a 12% QoQ increase. TRON’s ability to offer affordable and fast transfers has enabled the use of USDT across the entire globe. By the end of Q1, 53% of USDT in circulation was on TRON.

Looking forward, TRON aims to expand its ecosystem by integrating with Bitcoin. Through the development of its Bitcoin Layer-2 solution, investments in user-friendly Bitcoin wallets and tooling, and partnerships with existing Bitcoin projects, TRON aims to create a unified ecosystem that incorporates the TRON, BitTorrent, and Bitcoin networks in the future