Tron is Eating into Ethereum’s Share of the Tether Market, But It Will Have to Do More to Become a Serious Rival
- Tron is much cheaper to use than Ethereum and tends to handle many more transactions per day.
- Layer 2 platforms will outcompete Tron because they boast several advantages Tron lacks.
- "If Ethereum is able to significantly reduce gas fees in the near future, then yes, Tron could lose this advantage."
- Overall network activity on Tron seems to be limited to transfers and their gambling applications.
Tron (TRX) has long been the butt of jokes and insults from much of the crypto sector, stretching back to 2019 (and even earlier) and continuing to the present day.
Yet in the past year or so, it has become an increasingly hard-to-ignore Ethereum (ETH) rival, exemplified by the fact that the supply of tether (USDT) stablecoin on its blockchain has overtaken Ethereum’s own supply on numerous occasions.
As of writing, both blockchains have more or less the same amount of USDT -- USD 32bn -- on their respective networks, while Tron itself has recently celebrated it having reached 100m active accounts. Such figures paint the picture of a steadily growing network, in particular one that could challenge Ethereum’s dominance of the crypto sector at some point in the future.
However, opinion is well and truly mixed on the question of whether Tron is a serious Ethereum rival, with Ethereum supporters arguing that few meaningful projects are building on the smaller blockchain. Still, others contend that Tron’s growing supply of USDT and lower fees could help it expand further, a process helped by Ethereum’s delays in moving to proof-of-stake.
How Tron has eaten into Ethereum’s pie
Aside from its large supply of USDT, there’s one area where Tron clearly outstrips Ethereum: daily transactions. Based on figures from Etherscan and Tronscan, Ethereum has generally been managing between 1m and 1.3m transactions per day for about a year and a half, while Tron has been processing more than 3m over the same period.
In fact, in recent months Tron’s daily transaction count has risen from 4m to around 6m since April. This is a fact acknowledged by the Ethereum community and ConsenSys’ DeFi Economist David Shuttleworth says that there’s a simple reason for this.
“In short, Tron is much cheaper to use than Ethereum and tends to handle many more transactions per day, currently at about a 6:1 ratio,” he told Cryptonews.com.
This is a view shared by most other commentators within crypto, with Boolean Fund’s Mark Jeffrey affirming that the growth in the usage of Tron is driven by traders who are dealing with a large amount of stablecoins and who want to lose as little as possible in their numerous transactions.
“USDT is a LOT cheaper to move around on Tron than on Ethereum -- the gas fees are a LOT less. If you're moving USDT between exchanges (a common use case), Tron is the cheapest way,” he said.
Looking closely at Tron’s fee structure, David Shuttleworth explains that it can vary according to the amount of TRX a user has staked, although it's “typically” a fraction of a penny. The same doesn’t apply to Ethereum though.
“Ethereum gas fees, on the other hand, are significantly more expensive, with upwards of USD 10 fees during times of heavy congestion [...] Ultimately, this suggests that users migrate to Tron as a substitute for Ethereum to complete transactions, such as USDT transfers,” he said.
Can Tron continue growing (at Ethereum’s expense)?
While it’s hard to deny that Tron’s fees are significantly lower than Ethereum’s right now, and that Tron’s share of the Tether supply has consequently grown, opinion is much more mixed on whether it can continue growing as it has done over the past few months.
For one, industry figures affirm the possibility of two things: 1) that fees on Ethereum will decline; and 2) that the use of Ethereum-based layer-two solutions (e.g. Polygon, Arbitrum, Optimism) will also grow.
As such, it’s not certain that Tron will manage to capture an even greater share of the USDT supply.
“My take is that users will continue to use Tron as a substitute for Ethereum where possible (e.g. simple transfers), particularly when gas prices are prohibitively expensive, but that Ethereum gas fees are becoming progressively less expensive with the implementation of EIP-1559 and will continue to trend down with the exception of a few outliers,” said Shuttleworth.
He also suggests that layer 2 platforms will outcompete Tron because, even though their prices are still a bit more than Tron, they boast several advantages Tron lacks.
“They offer more interoperability and composability, and a user never needs to leave the Ethereum ecosystem (which poses various levels of friction and security risks such as bridging),” he said.
Another potential issue is that, although Tron uses its own version of the Ethereum Virtual Machine, TVM, there are some key differences between the two that could create friction for developers.
“So if a developer builds a successful application on Ethereum, but is required to make changes to their codebase in order for it to work on Tron, then this is a hurdle that might cut into volume as well. The alternative is for developers to outright build on Tron, independent of Ethereum, which I'm not seeing much of,” he said.
Other commentators, who aren’t quite so tied to Ethereum, take a more mixed view of the future.
“If Ethereum is able to significantly reduce gas fees in the near future, then yes, Tron could lose this advantage. However, Ethereum is at least a year away from this goal,” said Mark Jeffrey.
According to him, Ethereum is vulnerable right now, since there are multiple Ethereum Virtual Machine (EVM) chains that are already proof-of-stake, scalable, and very fast with extremely low gas fees.
“Any alt-EVM chain could supplant Ethereum if they continue to delay getting on par with these competitors,” he added.
And it’s arguable that Tron is better placed than many other EVM-chains to compete with Ethereum, since having “more tether moving around on your chain than anyone is a HUGE advantage.”
The bigger picture
Tron currently accounts for approximately USD 3.9bn in total value locked in (per DefiLlama), compared to USD 45.5bn for Ethereum. If it’s ever to become a truly dominant chain it, therefore, needs to do more than simply help people move USDT around.
“The problem, however, is that overall network activity on Tron seems to be limited to transfers and their gambling applications [...] rather than activity that is necessary to support a blockchain economy over time,” said David Shuttleworth.
He argues that it's not clear which meaningful projects are being built within the Tron ecosystem.
“Instead, a significant portion of Tron's daily activity is related to its betting services, such as TronBetLive and TronBetDice. You'll also notice that the majority of activity is related to transfers, which supports the thesis above that users leverage Tron's cheap fees when completing different transfers,” he added.
As such, Tron still has plenty of work left to do if it wants to overtake Ethereum anytime soon. Then again, Ethereum itself also has plenty of work to do if it wants to maintain its dominant position, since network effects may not be enough on their own to compensate for higher fees and lower speeds for long.
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