The Curious Case of Tron (feat. USDT)

I’ll begin by saying it’s quite a popular opinion that Tron, TRON Foundation and its oligarch, Justin Sun, are sketchy as hell. This is not a post about the morality of Tron, but rather an observation of its successes and what we can learn from them. I feel this is a very underlooked topic for what is arguably the third most successful chain after Bitcoin and Ethereum. I certainly don’t intend this to be a history lesson, but will cover the basics. Tron comes very much from the 2017-ICO-era of smart contract L1s - EOS, Tezos, Cardano etc. In 2018, Ethereum was still the dominant player, but most of the above-mentioned projects went their own way with different architectures & developer experiences to Ethereum. At the time, the top challenger to Ethereum was EOS. Tron brought something pragmatic to the table - combining EOS and Ethereum. From EOS came relatively centralized proof-of-stake and bandwidth-style fee markets, from Ethereum came the VM and developer experience.

Perhaps Tron’s greatest achievement were their outreach and business development. In 2018, USDT was the dominant stablecoin, and most of it was on Ethereum and Omni. Both were expensive, and there was a clear market gap for low-cost USDT transfers. By integrating with CEXs like Binance and Huobi early, Tron became the defacto low-cost USDT option. Through 2020/21, USDT-on-Tron saw exponential adoption, with the two key usecases being transfer between CEXs and peer-to-peer transfers in countries (mostly via CEXs) with unstable currencies or stringent capital controls like Argentina or Turkey.

Today, there’s $44 billion USDT on Tron, with somewhere between 2-3 million user accounts transferring between $5-$10 billion every single day. There are dozens of millions of users on CEXs like Binance that USDT for peer-to-peer payments. For them, Binance is their bank, USDT is their money of choice, and their Tron account addresses (on Binance or CEXs) are their account numbers.

Due to all this economic activity, Tron isn’t even cheap anymore - indeed, Ethereum L2s and many other L1s offer cheaper fees. But it has achieved the network effects, and the $1 withdrawal fee CEXs charge is still cheap enough for most of its users. Not to mention, there’s just holding USDT is free - and for those with aforementioned unstable currencies, these are valuable services. Binance made a big push to convert these users to using BUSD and BSC instead, but it just wasn’t enough.

Now, crypto enthusiasts will be shouting - but it’s completely centralized! Decentralization is all that matters!

Yes, Tron is quite centralized - 28 validators dictate things, and at least half of them are partially or directly affiliated with Justin Sun. Tron’s market cap is $7B, and by my napkin math, you can takeover the chain with $2B in TRON tokens - including the $44B USDT on it. To its credit, Tron is one of the few chains that has achieved economic sustainability - as mentioned above, its fees are actually quite high now, and that helps pay for its security budget. Still, it’s a fraction of Ethereum’s or Bitcoin’s economic security, largely due to a stark lack of monetary premium.

But none of that matters, because USDT and CEXs are centralized anyway. Even if Tron was attacked or compromised, Tether & CEXs will simply freeze Tron-USDT and over time convert to other chains. The users don’t care either - they just want access to digital USD in a convenient manner. This is something that Binance+USDT+Tron offers better than anything else. Decentralization is merely a means to an end, the only thing that matters is offering products that people want. Yes, decentralization can make certain products appealing to people, but in this particular case, it’s not the most important factor - it’s accessibility.

It’s worth remembering the total addressable market for transfers between CEXs and people seeking USD from unstable countries isn’t that high. It’s a few hundred million at most, and CEXs, USDT & Tron have captured at least dozens of millions of that. The exponential growth has already happened in 2020/21. Certainly, there’s going to be significant growth going forward, but the industry leaders are established.

The best hope for competition in this lucrative market is the Coinbase, Circle and Base alliance. USDC transfers on Base will be cheaper than USDT on Tron already, with fees continuing to decrease with EIP-4844 and later full danksharding. Anthony from The Daily Gwei has speculated multiple times that Coinbase could even subsidize USDC transactions on Base, and that would be a great move indeed. As Base matures, it’ll also be significantly more decentralized, secure and sustainable than Tron long term. Coinbase will need some great UX too, integrating with Base, offering both self-custodial and custodial options. At the end of the day, though, the ball’s in Coinbase marketing’s court, particularly international marketing. It’s a tall order, given Binance’s aforementioned failure to make significant inroads, and we know they have a huge lead outside of the USA - which is where most of the TAM for a USD stablecoin is.

Another possible dark horse is Tether releases their own L2 or L1, and incentivizes users to switch from Tron, though we’re making no gains on the robustness front.

Back to Tron, then, all the activity around USDT has definitely led to some other protocols finding adoption, but it’s not much. Outside of Justin Sun and his wealthy friends, DeFi adoption remains relatively sparse, with very little happening on the NFT, identity and other sectors. By and large, Tron remains The USDT Chain, but that’s enough for it to be the third most economically active blockchain after Ethereum and Bitcoin in terms of pure numbers. Before someone shouts “wash trading” - the numbers don’t lie, users pay more to use transfer USDT on Tron than any chain other than Ethereum.

I’ll end this post by reminding you about how I started it - Tron is sketchy, and this is in no way financial advice or anything of the sort. Yet, there are many lessons to be learned about market realities through Tron’s successes, and how competitors can take on this lucrative stablecoin market - arguably, the second most valuable in crypto after alternative/speculative stores-of-value.

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