Defying the Crypto Market Crash: The Recent TRON (TRX) Bull Run Explained

Everything you need to know about Tron

About a week has passed since Terra’s algorithmic UST stablecoin lost its peg to the USD and entered into a death spiral. This led to a massive fall in LUNA’s price and triggered a broader digital asset market crash.

However, while the crypto community remains shocked about the consequences of the recent black swan event, holders of TRON’s native TRX token have been accumulating profits even though TRX still got impacted by the Terra-fueled market crash.

But what is the reason behind TRX’s extraordinary performance this month? Let’s find out together in this article!

TRON and its native token TRX

Before we jump right to the analysis of the recent TRX price action, let’s quickly review TRON.

Founded in July 2017, TRON is a public smart contract blockchain network that aims to become the core infrastructure for the decentralized internet.

Like many Ethereum competitors, TRON utilizes the staking-based Delegated Proof-of-Stake (DPoS) consensus mechanism and prioritizes scalability to operate a fast chain that features 2,000 TPS and a block time of three seconds.

However, the network sacrificed a great level of decentralization to achieve high throughput, as only 27 nodes, dubbed Super Representatives, are responsible for block production and validation.

TRX is TRON’s native cryptocurrency that is utilized to settle all kinds of transactions within the ecosystem. Furthermore, since the blockchain uses the DPoS algorithm, validators and their delegators have to stake the coins to produce blocks, earning interest on their holdings as a reward.

Despite the project’s ambitious plans as an “Ethereum killer,” TRON, who possesses an extensive history, has been lagging behind newer smart contract blockchains, especially in the field of decentralized finance and NFTs. At least for a time.

By the end of April 2022, TRON ranked seventh with only a 2.02% market share among blockchains with the most DeFi activity, significantly outpaced by the likes of Terra, Binance Smart Chain, and Avalanche.

However, after UST lost its peg, Terra, who previously accounted for 16% of the DeFi market cap, saw its worth fall to as little as 0.36% as of May 16. As a result, multiple alternative smart contract chains started to gain ground, allowing TRON to become the fifth top DeFi blockchain with a nearly 4% market share.

One of the key use-cases of TRON is for stablecoin transfers – more specifically for Tether’s USDT. As a cost-efficient alternative to expensive ERC-20 transactions, USDT’s market capitalization is almost the same as on Ethereum, even though Tether recently moved $1 billion of the stable asset to other chains.

On the other hand, TRON is not a popular chain for NFTs, with the project failing to get ranked among the top 17 chains for non-fungibles based on CryptoSlam’s data.

What Happened to TRX?

Like most top cryptocurrencies, TRX had a good year in 2021, featuring a nearly 180% year-to-date ROI, despite the correction by the end of the year.

What’s more surprising is that the cryptocurrency managed to defy the Terra-fueled digital asset market crash in the past few days.

While TRX definitely took a hit due to the black swan event, its price is still up by over 10% since May 1, the day when it started its recent surge. For comparison, BTC, ETH, and XRP respectively lost 22.5%, 27.8%, and 31.2% of their values during the same period.

Interestingly, one of the main reasons behind TRX’s excellent performance this month is similar to what caused the market crash: an algorithmic stablecoin.

While Terra’s UST stable asset is trading well below its $1 target at a little more than $0.11, TRON’s decentralized autonomous organization TRON DAO launched the USDD (Decentralized USD) algorithmic stablecoin in late April.

Instead of relying on real-world collateral (crypto or fiat reserves), USDD’s algorithm utilizes a very similar process as Terra to maintain its stablecoin’s peg to the US dollar. Here, the algo burns TRX to mint USDD and vice versa while incentivizing arbitrage-based activity with discounts above or below the market rate to achieve price stability.

According to TRON founder Justin Sun, who has since reassured the community about the project’s algorithmic stablecoin-related plans, what’s different about USDD is that it is designed to have a much smaller market capitalization than TRX (before the depeg event, UST’s market cap was 65% of LUNA’s).

This, along with TRON DAO’s plans to allocate $10 billion of (competitor) stablecoin collateral and great amounts of BTC and TRX, aims to provide price stability for USDD and avoid an unfortunate scenario like we could see in UST’s case.

Considering all this, along with the 30% “risk-free” APY the project offers for staking USDD, it’s no surprise that TRX has been on the rise lately.

At the same time, since the coin has to be burned to mint the stablecoin – which has increased its market cap from less than $200,000 on May 2 to nearly $290 million by May 16 –, the circulating TRX supply decreased by 3% in only 16 days. Such a significant reduction in the supply could have facilitated bullish price movements for the digital asset.

TRX: Defying the Crypto Market Crash

In the past few days, TRON has surprised the crypto community.

As the depeg of Terra’s UST triggered a significant market crash during the past week, the project’s new USDD algorithmic stablecoin facilitated a bull run for TRX, defying the current bearish trends of the cryptocurrency market.

Interestingly, the project seems to be treading more carefully with its algorithmic stablecoin than Terra by not allowing it to outgrow its native cryptocurrency’s market cap as well as utilizing a combination of stable asset and BTC collateral in addition to TRX.

But is the price stability mechanism of TRON’s stablecoin more sustainable in the long run? If so, this could potentially lead to USDD becoming UST’s successor. On the other hand, is USDD destined to suffer the same fate as Terra’s algorithmic cryptocurrency?

Choose a language