State of TRON Q2 2023

Key Insights

• TRON’s daily average active accounts, new accounts, and transactions increased by 14%, 13.4%, and 28.9%, respectively. The growth coincided with the launch of the BitTorrent bridge and integrations of Stake 2.0, among other developments.
• The growth in network activity positively impacted revenue, which increased by 11.6% in TRX QoQ (up 22.2% in USD terms).
• Revenue translated to a substantial amount of TRX burned, which supported the value of TRX during an otherwise flat-to-down market.
• TRX outperformed most L1 tokens in Q2. TRX’s market cap increased 14.7% QoQ, compared to an average decline of 23% for other major L1s.
• Efforts to expand DeFi continued through Q2. Applications and infrastructure providers began integrating TRX liquid staking and the decentralized resource marketplace.
• TRON continued to improve network functionality, including the release of Stake 2.0 (TIP-467), GreatVoyage-V4.7.1.1 (Pittacus) and initiation of Great Voyage-V4.7.2 (Periander).

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.

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Key Metrics

Performance Analysis

Network Overview

Average daily active accounts reversed course after a double-digit percentage decline in Q1. Average daily active accounts moved from ~2.3 million to ~2.6 million, representing a 14% increase QoQ.

Daily activated (new) accounts also reversed course and increased by 13.4% QoQ. Daily new account activation reached its highest level in over a year, averaging ~219,000 versus the prior 12-month average of ~180,000.

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

Average daily transactions followed a similar pattern as account activity and grew by 28.9% to ~9.1 million over Q2. The increase can be partially attributed to the transaction type “other transactions,” which include account creation, SR account creation, account permissions update, proposal initiation, and other non-smart contract interactionson the network. “Other transactions” grew by ~1,200% QoQ but comprised only ~8% of all transactions on the network.

Transactions calling smart contracts and TRX transfers were up ~47% and ~10%, respectively. Together, they continued dominating transaction activity on the network, making up 83% of all transactions. Of the smart contracts triggered, the USD Tether (USDT) smart contract remained the primary driver of contract execution on TRON in Q2.

Collectively, incremental growth in network activity was spurred by the spike in activity during June. During June, several developments occurred, including:

• BitTorrent Bridge - On June 2, 2023, TRON expanded its reach by connecting with the Ethereum network with the launch of the BitTorrent bridge. The BitTorrent bridge made TRX fully accessible within the Ethereum ecosystem.
• Stake 2.0 - On April 7, 2023, Stake 2.0 went live on TRON Mainnet. Stake 2.0 is a new staking model that enhances staking and resource management, streamlines resource allocation, and enables flexible unstaking options. On June 16, 2023, Trust Wallet integrated Stake 2.0, enabling users to stake TRX under the new model.
• DWF Labs - On June 13, 2023, DWF Labs and TRON reached a strategic partnership to strengthen TRON ecosystem support. DWF Labs is a global digital asset market maker and multi-stage Web3 investment firm. It became a liquidity provider for the TRON ecosystem as part of the partnership.
• TUSD - One of TRON’s primary partner exchanges, Huobi, announced 0% fees on maker and taker trades for the TRX/TUSD trading pair at the end of Q1. The offer may have catalyzed the spike in user activity in June and the 72% increase in TUSD value on-chain during Q2.

The network also saw a significant decrease in transaction fees. During Q2, the average transaction fee in TRX and USD declined by 13.3% and 5.5%, respectively.

The decline in transaction fees followed a noticeable increase in transaction fees in Q1, which resulted from committee proposal No. 79. 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 low-value smart contract transactions without affecting other applications. Given the greater activity but lower transaction fees during Q2, low-value smart contract transactions may have been curbed and transaction fees returned to lower levels.

Financial Overview

During Q2, the Securities and Exchange Commission (SEC) alleged that several exchanges engaged in unregistered offers and sales of several cryptoasset securities. This followed the complaint in Q1, which alleged TRX is a security.

The SEC complaint in June coincided with downward pressure on the value of TRX, but TRX finished the quarter up 14.7%, reaching $6.9 billion. In contrast, the total crypto market cap increased by 2% QoQ, primarily driven by BTC and ETH, which saw a 7% and 6% rise, respectively. Further, most alt-L1 tokens tended to decrease more than ETH due to the SEC’s regulatory complaints.

As detailed in the State of TRON Q4 2022, 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 total fees paid by users would increase after implementing higher energy requirements (mentioned above) and the dynamic energy model.

The dynamic energy model and increased requirements for energy implemented in Q1 resulted in more revenue generation in TRX (total transaction fees paid in TRX) that carried on through Q2. Revenue in TRX increased by 11.6% QoQ (+22.2% in USD).

Nonetheless, the difference between the change in revenue versus market cap (in USD) suggests that overall fundamental network utility was slightly more significant than market behavior. The circulating market cap of TRX was 17x the annualized quarterly revenue at the end of Q1 2023 versus 16x at the end of Q2, suggesting a slight move to a more favorable valuation.

The uptrend in revenue continued to translate to a substantial amount of TRX burned, seeing as 100% of transaction fees in TRX are burned. TRON burned ~1.6 billion TRX and generated ~460 million, leading to a deflation rate of ~1.2% during Q2. On May 31, 2023, the TRON DAO burned over 268 million “old” ERC-20 TRX.

Ultimately, the resource model parameter changes and the TRON DAO likely improved TRX’s value, supporting the price of TRX during an otherwise flat-to-down market during Q2.

Ecosystem and Development Overview

DeFi

TVL denominated in USD was up QoQ, increasing by 7%. However, TVL denominated in TRX decreased by 7.9%, suggesting that asset price increases in USD drove TVL versus new capital inflow.

TRON's most prominent protocols by TVL JustLend, JustStables, SUN, and JustMoney benefited from the renewed network activity and market rebound of TRX throughout Q2. Each increased its TVL QoQ (3%, 14%, 27%, and 63%, respectively), but SocialSwap declined by 83% even after falling by 29% during Q1.

During Q2, SUN increased its share of TVL with Blockbank's support for SUN, the launch of SunSwap V2, and the traction of stablecoin swaps and stake-mining on SUN.io. While JustLend’s TVL increased less than other prominent protocols QoQ, there remained some concentration risk in TRON’s leading application. JustLend made up ~68% (~$3.9 billion) of TRON's DeFi TVL by the end of Q2, which continued to be dominated by three addresses.

Moreover, there were other efforts to expand DeFi in Q2. Liquid staking and the decentralized resource marketplace became a reality. Liquid staking enables users to swap their staked TRX for STRX, increasing the liquidity of staked TRX. After tokenizing staked TRX, the resource marketplace allows users to get free resources (Energy and Bandwidth). Finally, it enables applications to implement the resource leasing mechanism through which users can lease energy.

During Q2, the initial developments around TRX liquid staking and the resource marketplace included:

• Huobi - TRON's primary partner exchange, Huobi, listed STRX.
• JustLend - Announced its support for STRX and enabled users to swap their staked TRX for STRX. JustLend also announced support for the resource marketplace and enabled the leasing mechanism.
• TokenPocket - A multichain crypto and DeFi wallet. It announced its support for the resource leasing mechanism.

Other applications and infrastructure providers will likely implement the liquid staking and resource leasing mechanisms, which could further expand DeFi beyond JustLend.

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. Users will then receive continuous yield from those assets through a rebase mechanism.

Stablecoin Landscape

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 Q2, it held ~$44 billion, up from ~$43 billion (+1%) QoQ.

By the end of Q2, USDT maintained 92% (down from 95% QoQ) of the stablecoin value on TRON. This amount of USDT on the network could present a concentration risk to the ecosystem should USDT experience any technical or regulatory challenges.

However, TRON continued to expand its stablecoin landscape beyond USDT with a significant increase in TUSD. After Huobi announced 0% fees on maker and taker trades on the TRX/TUSD trading pair in Q1, the market cap of TUSD grew 420% (~$1.3). In Q2, TUSD value on the network grew by another 76% (~$1 billion) and became the second largest stablecoin with ~$2.3 billion in market cap.

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 from Messari’s State of USDD through Q2 are as follows:

• USDD traded tight to its peg in Q2, enabling $13 million of backing to accumulate in the PSM and the Curve pool to return to balance.
• The PSM reopened the channel for USDC to issue USDD.
• Adoption metrics leveled out but did not show a meaningful increase from Q1, with volumes and holders roughly flat quarter over quarter.
• The backing for USDD improved in Q2, thanks to BTC and TRX prices rising 7% and 15%, respectively. The stablecoin remains undercollateralized with non-TRX assets but is 171% collateralized including TRX assets.

By the end of Q2, ~25% of USDD was on the Ethereum network and BNB Chain, down from 26% the prior quarter. The TRON and BitTorrent networks maintained the other ~75% of USDD in circulation. Further, roughly 30% of USDD on TRON was held in JustLend smart contracts, while another 60% was in general accounts (user wallets).

Ultimately, the growth and movement of USDD were relatively uneventful during Q2.

The Ecosystem Beyond DeFi and Stablecoins

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

During Q2, the Grand Hackathon Season 4 was held with over 625 participants working on 127 projects. 500,000 USDD in prizes was awarded to winning development teams across six 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.

Judges selected the following first-place qualifiers for Season 4:

• TrustSight - Web3 Track
• Ergon - DeFi Track
• Duelers - GameFi Track
• Bobbybot.trade - NFT Track
• Elk Finance - Builder Track
• EcoMarket - Eco-Friendly Track

The community selected the following first-place qualifiers for Season 4:

• CryptoDo - Web3 Track
• Ergon - DeFi Track
• Cukies: Rush & Run - GameFi Track
• TNS Domains - NFT Track
• JustMoney Spot - Builder Track
• TRON POWER - Eco-Friendly Track

Further, season 5 is set to take place during Q3 2023. It will distribute 500,000 USDD in prizes to winning development teams across different tracks.

Other notable developments aimed at expanding the TRON ecosystem included:

• DWF Labs - As mentioned earlier, DWF Labs and TRON reached a strategic partnership to strengthen TRON ecosystem support through liquidity provision.
• Mises Browser - An extension-supported mobile Web3 browser announced its strategic partnership with TRON to promote the construction of the Web3 infrastructure and create services for users.
• Meme Coins - Huobi and TRON launched a two-month Memeverse carnival in May. Meme coin developers that joined the network gained access to dev support, including $1 million to reimburse trading gas fees and to prioritize exchange listings.

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, there are relatively few full-time TRON developers, but they have remained stable at 12-16 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 have enough resources, users must cover transaction fees.

With the rise in Energy requirements in December, the average amount of stake for Energy continued to trend upward and increased by 15.6% 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 2.1% 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 having the same 27 SRs participating in securing the network. But, at the end of Q2, over 400 SR candidates (up from ~390 in Q1) 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, 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 June 30, TRON nodes were distributed across more than 75 geographic locations around the globe, with the highest concentration in China (~20%).

Qualitative Analysis

Other Key Events, Catalysts, and Strategies for Ecosystem Growth

Aside from the ecosystem developments mentioned above, other aspects of TRON’s strategy pushed forward through Q2, with two strategic elements that stood out:

• Technical developments — Evolve network architecture and improve functionality.
• User access and experience — Attract users and devs with improved user access and experience.

Technical Developments

TRON continued to build onto the Great Voyage network during Q2.

As mentioned earlier, Stake 2.0 (TIP-467) went live in April. The new staking mechanism implemented a new layer to separate low-frequency staking operations and high-frequency resource delegating operations. It also supported resource re-delegating without unstaking and improved resource utilization.

Further, TRON client GreatVoyage-V4.7.1.1 (Pittacus) was released. It enabled the optimization of various aspects within the TRON Virtual Machine (TVM) and API. It also optimized the update logic in transaction receipts and removed insecure APIs.

Additionally, the Great Voyage-V4.7.2 (Periander) was initiated at the end of Q2 to go live on July 1, 2023. This mandatory release updates the network module to Libp2p v1.2.0, optimizes peer-acquiring strategy, and introduces the following TIPs:

• TIP-541: Support canceling unstaking in Stake 2.0
• TIP-542: Optimize the wallet/delegate resource API in Stake 2.0
• TIP-555: Network upgrade logic optimization

Finally, TIP-543 was introduced to add a proposal to allow adapting to the Ethereum Shanghai Upgrade. The Shanghai Upgrade included EIP-3855, which adds a new instruction called PUSH0 to the Ethereum Virtual Machine (EVM) to reduce the gas cost of smart contract transactions. TIP-543 will ensure compatibility between TRON and the EVM while reducing the energy costs of smart contracts on TRON.

User Access and Developer Experience

In addition to the already-mentioned Trust Wallet integration of Stake 2.0 and the launch of the BitTorrent bridge, other developments to improve user access and the development experience included:

• Slavi Wallet - A cross-chain mobile app with over 30 integrated blockchains integrated with the TRON network, enabling users to store, send, receive, and swap TRX, TRC10, and TRC20 tokens.
• Hong Kong ATMs - TRON USDT, BTC, and ETH were made available at Hong Kong ATMs during Q2.
• QuickNode - A blockchain infrastructure provider that provides APIs and tooling for over 24 blockchains. It announced its support for the TRON network.
• Particle Network - A full-stack infrastructure provider announced its support for the TRON network, offering middleware services to enhance development and onboarding experiences for devs.
• TRON-IDE - An online editor launched to help developers develop smart contracts. It has the characteristics of modularity and provides editing, compiling, and deploying smart contracts in the form of plugins.

Ecosystem Challenges

Despite TRON's progress toward its long-term goals and continued adoption, the ecosystem faced some challenges in Q2.

At the end of Q1, the SEC announced it was charging Justin Sun and three allegedly related companies for the alleged unregistered offer and sale of cryptoasset securities Tronix (TRX) and BitTorrent token (BTT). The SEC also charged Sun and the companies for "fraudulently manipulating the secondary market for TRX through extensive wash trading" and "orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation." This case proceedings continued into Q2.

In Q2, the SEC continued to bring regulatory actions, this time against crypto exchanges, including Binance.US and Coinbase. It charged the exchanges with trading cryptoasset securities, naming several more assets besides TRX and BTT. Nonetheless, after the actions in Q1 and Q2, Binance.US delisted and ceased TRX trading for all trading pairs and staking for TRX during the quarter.

The SEC lawsuits directly impact the entire crypto ecosystem. It should be noted that Justin Sun, the three named 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 three named companies helped grow the TRON ecosystem through investment and project launches. While the suits are ongoing, any adverse outcomes could slow the advancement of the TRON ecosystem and bring volatility to its native TRX token.

On the technical side, details were released in Q2 on a vulnerability in the native multisig mechanism of the TRON network. 0d, the security research team at dWallet Labs, disclosed its findings to the TRON team on Feb. 19, 2023. At the time, the vulnerability could have allowed any signer, irrespective of their weight, to bypass the multisig security feature, affecting over $500 million in digital assets held in TRON multisig accounts. Fortunately, the vulnerability was mitigated with a patch release within days of 0d's disclosure.

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 improving network functionality.

During Q2, additional technical plans began to surface. TRON hinted that the network and BitTorrent are exploring ways to integrate the ZK Ethereum Virtual Machine (ZKEVM). ZKEVM is a trustless and secure EVM-compatible execution environment that leverages zero-knowledge proofs to ensure the privacy of transaction data.

Beyond technical developments, TRON DAO and the community will continue to push growth forward, with plans to expand USDD further and develop the ecosystem beyond DeFi and stablecoins. 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

During Q2, TRON's daily average active accounts, new accounts, and transactions increased by 14%, 13.4%, and 28.9%, respectively. The growth coincided with the launch of the BitTorrent bridge, Stake 2.0, and integrations of TRX liquid staking and the decentralized resource marketplace.

The growth in network activity positively impacted revenue, which increased by 11.6% in TRX QoQ (up 22.2% in USD terms). Revenue translated to a substantial amount of TRX burned, which supported the value of TRX during an otherwise flat-to-down market. TRX outperformed most L1 tokens as its market cap increased 14.7% QoQ versus an average decline of 23% for other major L1s.

While SUN increased its share of TVL, there remained some concentration risk in JustLend, which made up ~68% (~$3.9 billion) of TRON's DeFi TVL by the end of Q2. USDT maintained 92% of the stablecoin value on TRON, but the network continued to see a notable uptick in TUSD.

TRON looks to expand its ecosystem beyond DeFi and stablecoins, as it continues to invest in ecosystem development. Grand Hackathon Season 4 was held during the quarter, and 500,000 USDD in prizes was awarded to winning development teams across six different tracks.

TRON's efforts to evolve network architecture and functionality continued as several technical developments rolled out during Q2, including the release of Stake 2.0 (TIP-467), GreatVoyage-V4.7.1.1 (Pittacus), and the initiation of Great Voyage-V4.7.2 (Periander).

Despite TRON's progress toward its long-term goals, the regulatory climate continued to present challenges. Adverse outcomes could bring future volatility to the TRX token and slow the advancement of the ecosystem.

Despite these challenges, TRON looks to remain competitive and continue its growth strategies to expand DeFi, stablecoin adoption, and other use cases. It also seeks to improve network functionally by building onto the Great Voyage network for the rest of 2023.

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