TRON (TRX) has recently emerged as a deflationary network, surpassing Ethereum (ETH) due to its accelerated token burns. Over the past year, TRON has implemented regular token burns, effectively reducing its supply and shifting its tokenomics.
TRON’s supply reduction through token burns
TRON’s supply reduction strategy has significantly decreased its total token supply. Over the last year, TRX’s supply dropped from 88.89 billion tokens to 85.6 billion tokens, marking an annualized deflation rate of 2.93%. This supply reduction is notable compared to its peak of 101 billion tokens in 2022, signaling a shift towards a deflationary approach. This ongoing token burn program echoes the strategies in other projects, like BNB Chain, which has achieved an average deflation of 1.1%. In contrast, some meme tokens, including SHIB and PEPE, have also pursued deflationary measures through voluntary burns or token lockups.
TRX burns led to a 12-month deflation of 2.93%. | Source: Tronscan
Initially, TRX functioned as a high-supply token, experiencing minimal price movements. Over time, its utility expanded to encompass simple transactions, liquidity provision, and various decentralized finance (DeFi) applications. The current deflationary trend in TRON contrasts sharply with other layer-one (L1) networks, such as Ethereum and Solana, which continue to introduce new supply. Ethereum’s inflation rate is 0.32%, a decline from a previous high of 0.74%, while Solana’s annual inflation is around 5%.
TRX price movements and market dynamics
The transition to a deflationary model has positively impacted TRX’s market performance. The price of TRX recently broke out of a prolonged period of sideways trading, approaching its 2021 peak. TRX is currently trading at $0.1606, nearing the high prices seen during previous bull markets. The increase in trading volume, averaging above $305 million daily, supports this price movement.
Skepticism about TRON’s ecosystem has persisted, primarily due to traffic concerns and fraudulent applications. However, TRON has established robust Web3 games and DeFi projects ecosystem, contributing to a total value locked (TVL) of $7.40 billion. TRON’s reporting claims a higher TVL of over $16 billion, surpassing the asset’s current market capitalization. Additionally, the USDT on the TRON network is at $61.79 billion, representing approximately 50% of the stablecoin’s market weight.
Comparative analysis with other layer-one networks
TRON maintains a more favorable market capitalization-to-TVL ratio compared to Solana, which has a TVL of $5.71 billion. With a total capitalization of around $13 billion, TRX’s market cap starkly contrasts Solana’s $67 billion, which is viewed as overvalued considering its TVL and fee generation. TRON generates over $20 million in monthly earnings, regularly paying validators and retaining a portion of its revenue. In contrast, Solana reports negative earnings due to its incentive structure.
TRON has accrued $1.42 billion in fees in the current year, although Ethereum leads with $1.97 billion. As Ethereum adjusts its fee structure, this dynamic may shift in the coming year. Speculative interest in TRX has increased, with open interest reaching a one-month high of $91 million.
Plans for a native version of Wrapped Bitcoin (WBTC) further bolster the potential for growth in the TRON ecosystem. Justin Sun, co-founder of TRON, has actively invested during the bear market, promoting new tokens and emerging meme token trading within the TRON ecosystem. Despite ongoing skepticism surrounding insider trading and uncertain reserves, TRON’s strategic developments position it as a noteworthy contender in cryptocurrency as it approaches the 2024 bull run.