Into the Grid: Breaking Down the TRON Blockchain Ecosystem
Is TRON just an Ethereum clone with a cool name? Here's what this smart contract blockchain has to offer.
Updated Jun 9, 2022
Many companies on MoneyMade advertise with us. Opinions are our own, but compensation and in-depth research determine where and how companies may appear.
There are dozens of dApps in the TRON ecosystem covering everything from lending, borrowing, and swapping to gaming and gambling.
Choosing a smart contract blockchain can be like choosing which socks to wear today. They all do pretty much the same thing, but some are more functional than others. These days, selecting which smart contract platform to use is largely inconsequential since most of them utilize a version of the Ethereum Virtual Machine (EVM). This means most smart contract networks are functionally identical and run a lot of the same DeFi apps, too.
TRON does everything other smart contract chains can do and, in fact, has a much simpler design than networks like Avalanche and Solana. While this could make it harder for TRON to build a unique use case, it doesn't mean it compromises anything when it comes to function, security, and the blockchain trilemma. TRON has been able to climb the crypto ranks through community building, supporting developers, and good old marketing.
What is TRON?
What is TRON?
TRON is a smart contract blockchain for running DeFi applications. TRON was founded by Justin Sun to help digital content creators distribute and extract more value from their work, although it acts more as an Ethereum alternative directed toward Asian crypto markets. Sun is the CEO of the TRON Foundation as well as the BitTorrent file-sharing platform.
TRON uses a delegated proof of stake consensus mechanism, which allows it to run more efficiently compared to proof of work networks like Ethereum (at least until the Ethereum merge). TRON smart contracts run on the TRON Virtual Machine, which is fully compatible with the EVM. This makes TRON able to run Ethereum smart contracts and makes it easier for developers to port over existing smart contracts.
Tronix (TRX) is the native crypto coin of the TRON network and it's used for paying transaction fees and staking to pay for network resources and participate in TRON governance. First, TRX staking is used to obtain computing power from the TRON network to run DeFi applications, so TRON applications that consume more network "energy" require more TRX to be staked.
Second, broadcasting transactions on TRON requires "bandwidth" from the network and this is paid for by burning TRX through transaction fees or by staking some TRX which grants stakers 1,500 units of bandwidth per day. Units of bandwidth and energy cost 1,000 Sun and 280 Sun, respectively, with "Sun" being the smallest denomination equalling one millionth of TRX.
TRX is the main governance token of the TRON decentralized autonomous organization (DAO), but staking TRX is required for participating in TRON governance. Each staked TRX equals one TRON Power (TP) which is used to vote for block producers called "super representatives." Eligible super representatives must stake 9999 TRX, but only 27 candidates with the most votes every six hours become part of the council of super representatives.
Super representatives earn TRX rewards for validating transaction blocks, but you can delegate staked TRX to them to earn part of their rewards. Only super representatives can vote to approve changes to the network, but super representative candidates and delegators can initiate proposals to modify the TRON network's parameters.
TRON doesn't have its own DeFi wallet, but you can stake TRX using a number of third-party crypto wallets. The best way to delegate TRX with a validator is by staking through an open-source wallet like Trust Wallet. Staking TRX with a validator is how you vote for them to become a super representative, and you can earn around 3.6% APY just for doing so. This reward rate is lower than some of the best proof of stake coins.
While TRON doesn't have a native DeFi suite like Fantom and other blockchains, TRON's DeFi ecosystem gets support from its active community of users and developers. There are dozens of dApps in the TRON ecosystem covering everything from lending, borrowing, and swapping to gaming and gambling. So, let's focus on a few decentralized applications (dApps) that'll give you the full scope of everything you can do on TRON.
Despite not having an official wallet, the TRON Foundation recommends using the TRONLink wallet to interact with the TRON ecosystem. The TRONLink wallet allows you to send and receive TRX as well as tokens and NFTs on the TRON network. You can also use TRONLink to access other applications for voting, staking, or swapping cryptos. What's great about TRONLink is that it's available as a browser extension as well as an app on iOS and android, which is super convenient.
You can access the SunSwap app by clicking the "swap" button in the TRONLink app. SunSwap is a decentralized exchange similar to Uniswap except on the TRON network. You can use SunSwap to swap between TRX and other crypto tokens such as Decentralized USD (USDD), which is TRON's native stablecoin. You can also earn crypto by providing liquidity in a trading pool on the SunSwap exchange.
TRON recently launched its native USDD stablecoin, which was originally meant to be an algorithmic stablecoin similar to Terra's UST. However, the collapse of UST and Luna crypto shortly following the launch of USDD has prompted Justin Sun to establish the TRON DAO Reserve. The reserve was created to provide backing for USDD over fear that an uncollateralized stablecoin would be unsustainable and succumb to the same fate as UST.
The TRON DAO Reserve currently holds around $836 million in reserve assets made up of 240 million USDT, over 14,000 BTC, and over 1.9 billion TRX. While this gives USDD something to fall back on, it does harken back to the Luna Foundation Guard's $2 billion in Bitcoin which failed to protect UST's peg to the dollar.
Another red flag is the 30% APY rate for staking USDD that's advertised on the TRON DAO reserve website, which is even higher than the 20% rate for UST touted by the Anchor protocol. However, USDD's advertised reward rate can't actually be found on any DeFi protocol on TRON. You can either earn around 21% APY by depositing USDD in some SunSwap liquidity pools or about 16% by depositing into the JustLend protocol.
The main crypto borrowing and lending protocol on TRON is JustLend, which is similar to protocols like AAVE and Kava. Users can supply cryptos like TRX or stablecoins like USDD and USDT to the JustLend protocol to earn in-kind rewards and JST tokens. Those who supply assets to the protocol can use them as collateral to borrow crypto, but the value of a crypto loan can't exceed that of the collateral. JST is the governance token for the Just DeFi ecosystem, which includes JustLend and JustStable.
While USDD stablecoin was supposed to be minted algorithmic, its transition to an over-collateralized model makes it more similar to MakerDAO's DAI but without an accessible minting mechanism. However, TRON users can still mint the USDJ algorithmic stablecoin through the JustStable DeFi protocol app. All you need to mint USDJ is to deposit some TRX as collateral, but the minimum collateralization ratio is 150%. This means the amount of USDJ you can mint can't exceed half the dollar value of your TRX collateral.