bitcoinmarketjournal.com
At Bitcoin Market Journal, we invest in crypto tokens as if they were stocks. While there are important differences between the two, we analyze crypto “companies” like traditional companies, and diversify our investments with a mix of both. More on our approach here.
Key Takeaways:
- Tron boasts the largest daily user base of any blockchain, showcasing its vibrant community and healthy ecosystem.
- Tron faces an SEC lawsuit accusing it of unregistered securities sales (through its TRX token), and market manipulation.
- Tron is the second-largest layer-1 chain by Total Value Locked (TVL), but it still lags behind its closest rivals in terms of protocols hosted on the chain, which could reflect an underdeveloped developer community.
It’s 2017, and the first crypto boom is in full swing. Enter Justin Sun, a young entrepreneur with a vision that would make even the most seasoned investors sit up and take notice. Fresh from his stint as Ripple’s chief representative in Greater China, and armed with the mentorship of Alibaba’s Jack Ma, Sun wasn’t just dreaming big—he was aiming for the stars.
His idea was Tron, a platform that he hoped would turn the entertainment industry on its head. Sun’s pitch was simple: cut out the middlemen and connect content creators directly with their audiences. It was attractive to artists and consumers alike, promising a future where creativity flowed freely, unshackled by corporate gatekeepers.
But grand visions need grand funding, and Sun saw crypto as a way to provide those funds. Sun launched Tron (TRX) through an Initial Coin Offering (ICO) on Ethereum. His timing was impeccable, and a cool $70 million poured in, giving Sun and his team the funding they needed.
Fast forward to 2018, and Tron hit its first major milestone: the launch of its own mainnet. This wasn’t just a technical upgrade; it was Tron’s declaration of independence from Ethereum, a bold statement that they were ready to play in the big leagues.
But Sun wasn’t finished. He quickly launched the Tron Virtual Machine (TVM). Now, developers could build smart contracts on Tron, opening up a world of possibilities that would give Ethereum a run for its virtual money.
Today, Tron stands as the second-largest layer-1 platform by Total Value Locked (TVL), just behind Ethereum. It’s a testament to Sun’s vision, the team’s relentless drive, and the power of a community that believed in a dream.
In this guide, we’ll analyze Tron’s fundamentals, as well as the potential risks, so you can decide whether to invest in Tron’s TRX token.
Key Fundamental Data
Daily Active Users (DAU): According to Token Terminal, Tron records over 2.04 million daily active users, marking a 50% increase in roughly a year. This impressive DAU metric places Tron far ahead of competitors such as Ethereum (370k), Solana (1.1 million), and Binance Chain (783k).
Fees and Revenues: Tron generates revenue primarily through transaction fees charged for operations conducted on its network. Due to the high level of engagement, Tron currently generates more monthly revenue through fees ($154 million) than Ethereum ($87 million).
Market Cap: TRX has a market cap of over $10.4 billion, reflecting a 50% increase from a year ago. However, when compared to other layer-1 tokens, TRX still lags behind ETH ($281 billion), BNB ($61 billion), SOL ($56 billion), and TON ($13 billion).
Market Analysis
Problem that it solves: Tron's main goal is to decentralize the internet. It provides a platform for developers to create dapps and for content creators to engage directly with their consumers. Despite its broader vision, TRON's current landscape is predominantly dominated by decentralized finance applications.
Customers: Likely TRX users include dapp developers, content creators, consumers desiring decentralized platforms, and blockchain enthusiasts.
Value creation: Tron aims to ensure that creators are more equitably rewarded by eliminating intermediaries, thus potentially reducing costs for consumers and providing transparent and direct access to creations.
Market structure: Tron is targeting the expansive online content and entertainment industry, which is vast, with room for growth. However, as a layer-1, it operates in an already-saturated space that has Ethereum as the clear leader.
Market size: With the 2nd largest TVL of over $7 billion, the potential market size for Tron is enormous, considering its ambition to tap into the global online entertainment and content industry.
Regulatory risks: Tron faces significant regulatory risk due to its size and has already been sued by the SEC. The lawsuit accuses the Tron Foundation and its founder of unregistered securities sales and engaging in manipulative wash trading to artificially boost TRX’s trading volume.
Our analysts rated TRX a 3 out of 5 for market analysis. Download the complete scorecard here.
Competitive Advantage
How big is the company moat? Can they defend against competitors?
Technology/blockchain platform: While it initially began as an ERC-20 token on the Ethereum platform, Tron migrated to its independent blockchain in 2018.
Lead time advantage: Tron was not among the earliest entrants in the decentralized platform space, with platforms like Ethereum preceding it. However, it quickly established a significant presence in the market, especially in Asia.
Contacts and networks: Justin Sun, the project's founder, is well-connected within the industry, positioning him to access key players in the market.
Our analysts rated TRX a 3 out of 5 for competitive advantage. Download the complete scorecard here.
Management Team
Does the team have the experience, intelligence, and integrity to make the company great?
Entrepreneurial team: Justin Sun, the founder of Tron, is a highly recognized figure in the crypto industry and is linked with its success.
Industry/technical experience: The Tron team has experience in the blockchain domain, having worked on Tron's development since its inception. The platform's growth suggests that the team has adequate technical proficiency.
Integrity: Tron founder Justin Sun has always been a controversial figure in crypto. The U.S. Securities and Exchange Commission (SEC) charged him in 2023 with the unregistered sale of crypto asset securities, and manipulation of the secondary market for TRX.
Our analysts rated TRX a 3 out of 5 for the management team. Download the complete scorecard here.
Token Mechanics
Is the token design favorable to long-term investors?
Is a token necessary? TRX is vital to Tron, serving as the primary medium for transactions, staking, and network governance.
Value added: TRX doesn't necessarily add a new type of value, as it more or less serves similar functions as tokens on other smart contract platforms.
Decentralized: Tron has a decentralized governance structure since transitioning to a Decentralized Autonomous Organization (DAO) in December 2021.
Token supply: Tron has a supply of 89 billion TRX, though this supply is not capped.
Public exchange: TRX is listed on major exchanges such as Binance, Kraken and KuCoin.
MVP: Tron has a functioning blockchain that has hosted numerous dapps since its launch in 2018.
Our analysts rated TRX a 4 out of 5 for token mechanics. Download the complete scorecard here.
User Adoption
How easy will it be for the company to grow users?
Technical Difficulty: Tron emphasizes high throughput and aims to revolutionize content sharing by enabling creators to connect directly with their audience without intermediaries. Its ambition to create a decentralized content experience may provide a unique selling proposition in the blockchain space and attract new users. However, it still requires some understanding of blockchain technology.
Halo Effect: Tron has secured noteworthy partnerships, most notably with Samsung in 2019 (a year after it acquired BitTorrent). This association with well-regarded brands elevates the project's reputation.
Buzz: Tron has a solid social media presence with over 1.5 million followers on Twitter and 130k members on its subreddit.
Our analysts rated TRX a 4 out of 5 for buzz. Download the complete scorecard here.
Potential Risks
What risk factors might cause intelligent investors to stay away?
Team: Tron’s team faces significant regulatory scrutiny who have been charged by the SEC for unregistered securities sales and manipulative trading practices. While the team has strong technical experience, potential information asymmetry and integrity concerns stemming from these legal issues present considerable risks for investors.
Financial: Tron mentions on its website that it has a $1 billion ecosystem fund aimed at advancing development. That said, Tron’s financial risks include limited public information about diversification of holdings, which could affect liquidity and resilience. Also, the SEC has charged celebrities for illegally promoting TRX, raising concerns about transparency.
Regulatory: Tron faces significant regulatory risks, particularly as the SEC scrutinizes TRX, potentially treating it as a security. Additionally, Tron's high visibility and position as a major decentralized platform make it more vulnerable to regulatory actions.
Smart Contract: Tron's smart contracts were audited by the security firm Least Authority, which helps mitigate some smart contract risks. Additionally, the platform offers a bug bounty program, making it easy for users to report vulnerabilities and contribute to the security of the network.
Traction: Tron has no problem attracting users both on-chain and off-chain, with strong daily activity and a solid presence on major social media platforms.
Behavioral: Some investors may be drawn to TRX for its growth and future potential, while others might be investing based on hype and FOMO, envisioning that Tron could potentially become the next Ethereum, as it is often categorized among the "Ethereum killers."
Our analysts rated TRX a 2.8 out of 5 for risk (Note that for this section lower = better). Download the complete Risk scorecard here.
Investor Takeaway
BULL CASE: Tron has established itself as a key player in the highly competitive layer-1 space. The project is second only to Ethereum in terms of TVL, and has achieved remarkable user engagement, surpassing 2 million daily active users. With a solid technological foundation, strategic partnerships, and a capable team, Tron is well-positioned to continue benefiting from the growing adoption of blockchain platforms.
BEAR CASE: Despite its achievements, Tron faces significant challenges that could impede its growth. Leadership controversies, particularly involving Justin Sun, have raised concerns about the project's integrity and stability. The SEC has filed a lawsuit against him and the Tron Foundation, accusing them of unregistered securities sales (TRX) and manipulative wash trading to artificially inflate TRX’s trading volume. Additionally, Tron operates in a highly competitive layer-1 space, facing strong rivals like Solana and Binance Chain.
Overall, our analysts rated TRX a 3.4 out of 5, based on its technological achievements and user engagement, balanced against its controversies and legal battles. Download the complete scorecard here.
This analysis is to help make you a better-informed investor; it is not financial advice. The future may look different than the past. All investing involves risk; see our investing approach for how we manage risk through diversification. Never invest more than you’re willing to lose, and see losses as learning.