The cryptocurrency sector changes very quickly and next year it will be no different. It’s been dominated almost completely by speculative forces but, it’s slowly maturing and at some point in the future, the fundamentals of a crypto coin will become more important in determining value than sheer speculation. Some digital assets will manage this transition better than others. The two factors that will facilitate that will be adoption and usefulness.
In the investor’s view, a business is typically valued in terms of some very time-honored methods such as price to earnings or price to book ratios, PEG calculations, and dividend yields. But you can’t apply these formulas directly to the cryptosphere.
Cryptocurrencies are new assets that are not even ten years old and that, as such, they need new tools to assess their value. But those tools are only starting to come into existence. This has created confusion among investors who don’t know how to estimate a coin’s value. That’s one of the main reasons behind the market’s wild volatility.
In this article, we will explain to you the fundamentals of a rather new blockchain 3.0 project called Tron. It’s barely a year old, but it’s already one of the stars in the cryptoverse. We’ve chosen Tron because it’s solid in its fundamentals, so it has a very good chance to become valuable in the future. We’re not trying to persuade you to invest in Tron or to buy TRX tokens, just to keep it in in your watch list.
The Tron Blockchain: Turning the page
The Tron network includes a native token called Tronix (TRX). It’s one of the most controversial subjects in the crypto world. The fans think that it’s a revolutionary force that will change the internet (especially the web) for good.
Detractors, on the other hand, are quite skeptic and give all the merit in the project’s market value to adept PR and marketing. You’ll have a very hard time finding a balanced, dispassionate analysis of Tron, but that’s what we’ll try to give you.
The protracted bearish run that has plagued the crypto market for more than eleven months now is an opportunity for the new players, like Tron. Tokens like TRX have a chance to drive the market’s next bullish run because of their intrinsic fundamental value instead of speculation.
A viable use case for the Tron foundation is soon to be launched in the forms of the monetized torrent protocol, an eager community that is confident about the project’s future, a brand new smart-contract that allows for the development and deployment of decentralized apps, TRC-20 tokens, and ICOs. Tron’s backers come to the table with a wealth of lessons learned from other blockchain projects and a host of new tools that will make all the difference when the bears in the market finally go to hibernate.
A tale of Tron
Tron’s highest price happened this year, in early January. It’s fallen by about 96% since then and it’s currently trading at $0.014. As it often happens in the market, the fall hasn’t been straightforward but rather sinuous with many highs and lows.
TRX went from $0.028 to $0.045 between 19/03 and 26/03 (60% increment). That rise happened because the project’s final testnet (called Odyssey) was launched and it created lots of excitement and expectations as the community anticipated the Main Net’s arrival in May. The buying pressure we saw during that period ratified the community’s trust in the timely delivery of the new Main Net (which was exactly what happened). When the brand new net came online, the price rose from 0.03 to 0.092 in a single day
By creating an autonomous Main Net, Tron left the Ethereum blockchain and moved to its own which had been on the works for more than a year. It followed Ethereum’s example by adopting the open-source philosophy that is easier to improve by community involvement. It also accumulated a juicy war chest to hire developers and buy decentralized projects that could extend its capacities.
A lot of hype surrounded the launch. The project’s charismatic and maverick leader, Justin Sun did his part to create expectations and several other crypto social media influencers helped as well. They managed to make believers out of many crypto enthusiasts. Suddenly it became clear for some that Tron’s platform could really give Ethereum a run for its money as the cryosphere’s network of choice when it comes to smart contracts and decentralized apps.
Other factors also intensified the hype and speculation. Tron was among the first few well-funded projects that went away from the Ethereum network and the ERC-20 token standard (EOS did the same, more or less at the same time). The lack of precedents for this scenario added interest.
The “The Ethereum killer” thing died out rather quickly. About a week before the main net’s release, the bears visited the TRX market. The price is yet to recover from that.
“Build something great and they will come” is something of an ethos that rings true in the technology industry. Tron’s strategy (and that of many other players in the blockchain) would be better conveyed by a phrase like “make them come, and let them wait while we build something great”
But the market isn’t waiting and it’s been driving TRX market capitalization down since last May.
The case for Tron (TRX) in 2019
Tron’s blockchain is in a transition period. It’s finding its way to become a legitimate cryptographic asset platform, but it’s struggling and it’s not walking very gracefully towards that goal. On the other hand, it boasts a number of formidable projects in the works that hold a potential to be like nothing seen before in crypto.
Project Atlas is one of those projects, probably the most interesting one. It’s about bringing the BitTorrent decentralized network (the planet’s biggest decentralized network with 45 million daily active users, and 170 active users monthly) into Tron’s blockchain. The move became possible after Tron bought BitTorrent last June. Only a few BitTorrent’s users will be aware of or interact directly with the Tron network, but sudden access to such a gargantuan pool of potential users is nothing to sneer at.
The main feature in Project Atlas is expected to be a TRX reward program for BitTorrent seeders. In BitTorrent “seeding” happens when a user that has successfully downloaded a file from the network keeps it available for other users to download. This maintains the network active because, being a P2P protocol, there is no central server from which users can download content.
As things stand right now in BitTorrent, there’s no reason for sacrificing bandwidth by seeding other than altruism or a libertarian sensibility. An incentive system based in TRX, seeders will be literally paid in altcoins to host their content for longer periods of time. Theoretically, that would improve the torrent network functionality as more content will be available and seeders will be happier.
The BitTorrent protocol allows to upload and download of all kinds of files, especially of large media files (audio and video) and it’s already a decentralized network. In this regard, it lines up very well with Tron’s mission which is to use blockchain technology to decentralize the web so a global free content entertainment system substitutes the current central authorities in the online entertainment industry.
BitTorrent includes a brand new web platform that allows for partial video and audio files to be played while they’re still downloading. Yesterday, the company started to accept digital assets (TRX, BTC, and BNB) as a means of payment for their premium software. That boosted the TRX price by around 30% in less than a day.
BitTorrent’s transformation into one of Tron’s decentralized apps that includes token rewards for seeders will be a huge milestone for Tron. But no date has been announced for Project Atlas to come online yet.
A different (and very publicized) use case for TRX is its adoption by PornHub, one of the globe’s largest providers of adult entertainment content. The video platform is now accepting TRX tokens as payment for its premium services. This is another huge pool of potential users as the site was visited 28.5 billion times last year. PornHub’s monthly membership is at 832 TRX which is about $10 USD.
But there’s a catch for both the BitTorrent and the PornHub use cases. Most of the content in both networks is free, so either paying for the premium membership or getting TRX for seeding is hardly going to attract too many users.
Only 1% out of $81.5 million daily users visit PornHub’s premium section, according to the website’s own data. Only a fraction of that one percent are new subscribers and even fewer will be willing (or able) to pay with TRX or Zen (the other crypto payment option supported by Pornhub). That being said, the partnership has brought Tron closer to the mainstream.
Partnerships and community
Tron is attaching itself to well-known brands, organizations, and individuals. Kobe Bryant, the NBA superstar player, will be the keynote speaker at niTRON, the project’s annual conference which will take place next January in San Francisco.
A basketball player is maybe not the most intuitive choice for a blockchain conference, but Byant is not your run-of-the-mill star athlete. He is a partner at Bryant Stibel, a venture capital firm with a strong interest in technology ventures. Among those ventures, there are sports websites, sales platforms, and mobile game publishers, to name just a few.
So Mr. Bryant is indeed experienced in investment strategies and fund management, so chances are that the keynote will be substantial and not just all about PR. And yet, PR will be Tron’s main achievement as it will create buzz and attention from the mainstream (and from crypto) by securing a household name like Kobe Bryant.
Ripple tried something similar at their last Swell conference by having former US President Bill Clinton delivering the event’s keynote last October.
The excitement surrounding the event, together with upgrades to Ripple’s xRapid platform made XRP rise in price. It happened while the cryptocurrency market was relatively quiet, and it made XRP stand out very clearly.
In the cryptocurrency market’s short history (it will be ten years old next January), good marketing and public relations have a proven track record as tools that create buying interest among retail investors. Yes, that’s somehow childish and the market would be better off if most retail investors were experts chasing value. But things are what they are, and retail investors are more important in crypto than in most other industries because institutional investors remain very reluctant to join the cryptosphere. That is why Justin Sun’s masterful marketing tactics have created a lot of noise and had given Tron’s price much of its past momentum.
The retail effect is intensified in the periods of high volatility in which speculative pressure is the main force behind changes in price at the exchanges that support TRX.
Tron’s historical data reveals that the project’s Github activity is not exactly great. On the other hand, it has a very strong presence in all social media where it’s been able to attract lots of followers very easily. The Tron Foundation alone has 353,106 followers alone. It’s grown by almost 30% over the last eight months. Justin Sun, the leader and founder boasts more than 593,000 followers.
Solume.io is a service that provides social volume metrics. It measures the mentions a given token gets on the relevant spaces in Twitter and Reddit, and it analyzes them into positive and negative mentions. Tron’s mentions are mostly on the positive side of the social volume. Even when the token’s price is moving sideways, the project remains able to develop positive social traction. Over the last 90 days, it’s been mainly negative only once, and that happened in a day that saw 15% losses.
Even the latest price drop (which came about some twelve days ago) didn’t change this trend as positive mentions are still considerably more frequent than negative ones. The tweeting activity by community members shows that they support the project with fanatical fervor and that they remain bullish about the token even when the market’s sentiment is the opposite.
This community behavior is in stark contrast with most others in the crypto environment. Monero, for instance. It has basically the same market capitalization as Tron (Monero is 11th, Tron is 12th) but its social media presence is quite scant by any measure available. Also, Monero’s positive social activity is basically flat when the price is flat. Tron’s keeps rising even as the price is stuck, and even when it goes down.
This ability to inspire a community and provide it with HODL fuel is not a random thing. The Tron Foundation and the project’s leaders are constantly reaching out to the community and cultivating their relationship. Advertising of the high production value kind, several yearly events available in live streams, monthly updates in many different languages.
Not the Ethereum Killer after all… so far.
Tron’s network is up and running as you read this. It verifies transactions using an innovative consensus algorithm called Proof of Authority which has the advantage of not being disruptive. In this consensus model, block publishers are selected by community voting.
But there is something that still seems to be missing, namely, the genuine developer activity or use cases for the coin apart of speculative trading.
Tron’s platform includes the TRC-20 technology, which is an alternative to Ethereum’s ETC-20. It allows for Tron users to create their own Tron-based cryptocurrencies and launch ICOs. The most referenced among Tron’s tokens is Tron Market Watch (TWM). It’s meant to be a payment tool for Tron’s own decentralized cryptocurrency exchange that includes all the tradeable TRC-20 tokens such as TRWJ. 14 coins are listed there so far.
The project managed to achieve a soft cap level of $310,000 but it fell very short of the $5,000,000 hard-cap goal and, by the time the raise ended, it was less than $1,000,000. The IGG token, which is the most successful in the TRC-20 family also failed to raise much money ($110,000)
Most of the tokens available at Tron’s DEX seem rather basic, a little too abstract (concrete information is lacking), and they don’t have backing or funds.
Tron’s current state has nothing to do with the way in which Ethereum exploded in 2016 and 2017.
It’s no secret that the current sentiment about crypto is bearish. And it’s even worse when it comes to ICOs. Yet SYLO, which held an ICO over Ethereum is currently valued in more than 10 million dollars. So no, Tron is not about to threaten Ethereum’s position as the king of smart contracts any time soon.
Tron’s dApp store has 14 dApps currently listed. Most of them are gambling games and many have limited transaction volume (or users).
Comparing Tron’s utility and activity with Ethereum’s is very complicated with so few apps available. The latter has a much bigger and manifold dApp catalog that includes decentralized betting, crypto collectibles, and distributed data storage. All in working order and running on the network. Yet both blockchains have similar metrics of volume and activity and Tron’s casino has become very popular very quickly in the last few weeks.
Vulnerability to regulatory risk
The US securities laws leave some room for interpretation as they’re based on philosophical principles rather than in rigid rules. It’s very hard to determine the true usefulness and nature of a fledgling token such as Tron.
Token transactions could easily be considered “investment contracts” as defined by the Howey Test. This would make TRX a security within the United States and not a commodity or a currency. If that should be the case, it would have to comply with the tighter constraints of the Securities Act of 1933 and the Securities Exchange Act of 1934.
That is something that no cryptocurrency in the market wants because it means enhanced investor protection, and TRX would need to trade on secondary markets. That would bring about fines and would cut some trading channels.
The spectacular value drops of 90% or more that we’ve seen this year in TRX and many other digital assets make it more urgent for SEC to step in and start regulating ICOs and foundations. Projects like Airtoken (AIR) and Paragon (PRG) were already ordered to give their investors their money back as they failed to comply with the securities law.
“Any profit comes from the efforts of a promoter or third party” is the way in which the Howey test fourth rule defines a transaction as an investment contract. Tron is probably not sufficiently decentralized to avoid it.
As things stand today, TRX’s market capitalization, price, and trading interest result mainly from the Tron Foundation’s activities. It was this organization who launched the first ICO and it still provides leadership for the project as a whole. TRX is not really useful yet because user participation is still very limited. But as dApp activity and ICOs keep moving forward, that could change.
It’s anybody’s guess what SEC will decide about Tron. It’s a well-capitalized project that has the resources to challenge any charges so SEC is more likely to go after smaller projects that won’t offer that much resistance. It also happens that Tron and Justing Sun are non-American. They operate out of Beijing, China, so that could also make it difficult for SEC to enforce the law on them in the near future.
Tron is capitalized at almost a billion dollars and it’s supported by many exchanges on the planet. The charismatic maverick and founder, Justin Sun is very famous and respected in Asia. His activity in social media has been impervious to negative market developments during the last year. Through BitTorrent and PornHub they have access to 120 million potential users a year, and it’s now a fully autonomous blockchain that runs its own main net. Those are Tron’s pros.
And now, for the cons. There are too few dApps and ICOs on the platform. And it could be exposed to disruption by regulators if SEC construes TRX as a security instead of a utility token.
Image courtesy of Pixabay