Published: June 1st, 2022
Tron, the blockchain launched by crypto entrepreneur Justin Sun in 2018, has climbed the DeFi league table to become the number three blockchain measured in total value locked (TVL).
Figures from DefiLlama sum the total value locked across the Tron DeFi app ecosystem at USD 5.8 billion, surging 43 per cent over the past 30 days.
That places it just behind Binance Smart Chain (BNB) and industry leader Ethereum (ETH) on the TVL podium. Binance Smart Chain's TVL stands at USD 10.7 billion while Ethereum rules the roost with more than USD 92.5 billion.
One area where Tron currently leads the pack is its track record of continuous growth. In fact, other DeFi leaders like Ethereum, Solana, Polygon, BNB Chain, Fantom and Avalanche have all been losing share of TVL with double-digit losses posted over the past month.
What's behind Tron’s apparent surge? The recent uptick in activity has been sparked by the launch of its new algorithmic stablecoin USDD, which promises annual returns of up to 20 per cent. Industry watchers say there are echoes of Terra's business model in the promise, a potential worry given that stablecoin’s (terraUSD) recent market meltdown.
Unlike Circle’s USDC, or Tether’s USDT, USDD isn’t backed by fiat or crypto. Instead, its governed by smart contract algorithms that peg it to the US Dollar. The mechanism is an arbitrage trade between Tron's network’s native token TRX, and USDD.
USDD holders have the option to swap (and burn) one USDD for one dollar’s worth of TRX. If the price of USDD dips below the dollar peg, they can buy the discounted USDD and swap it for TRX, trousering the difference after selling the TRX tokens on a DeFi exchange of their choosing.
If that all sounds slightly familiar, it's because the recently imploded Terra stablecoin (and sister token luna) followed a similar structure
As with Terra, USDD promises investors double-digit annual returns across a growing list of Tron-based DeFi projects.
So far, so good. USDD’s current rate on JustLend, the Tron-native lending platform, sits at 22 per cent at time of writing. On the SUN stablecoin platform, users can earn as much as 63 per cent by staking their USDD-TRX tokens.
With such attractive rates on offer, it's no surprise that Tron-friendly platforms have seen a sizeable uptick in activity.
DefiLlama says JustLend's TVL leapt from USD 1.78 billion to USD 2.85 billion in the past month. Other Tron protocols like SunSwap, JustStables, and Sun.io, have also seen a recent boost in TVL. JustStables TVL jumped by 15 per cent, while Sun.io's TVL exploded by 140 per cent over the same period.
None of those spikes place the challengers anywhere near the scale Terra's UST achieved before its precipitous fall, but USDD's market cap is rapidly on the rise.
According to data from CoinMarketCap, it currently boasts a total supply of 600 million tokens, and a market capitalization just north of USD 601 million at time of writing. That’s up from USD 90 million posted when it launched on 5th May 2022.
While Tron and others enjoy a moment in the sun, markets are still reeling from the sudden collapse of Terra and UST, which cratered to zero in mid-May 2022, slashing tens of billions of dollars in value from the market in a heartbeat. Crypto industry watchers say that a new round of regulatory rules may emerge as a result.
The US, South Korea, and Singapore all appear set to intensify oversight of DeFi markets in order to rein in risk.
America's Securities and Exchange Commision, Treasury Department, and regulators in other countries have said that they're looking at tightening crypto regulations.
Chinese regulators say they’ve been keeping a close eye on USDT, and the Terra crash may give them the ammunition to justify another crypto crackdown, this time with so-called stablecoins in the crosshairs.
Singapore looks ready to walk back its crypto-friendly reputation, which has attracted crypto firms from all over the world. In the wake of Terra’s implosion, more than 1,000 local investors told police that they lost money on the project. The city state’s regulatory regime for crypto is almost certainly going to tighten as a result.
In crypto-mad South Korea, Terra’s crash has delivered a hammer blow to a number of local finance firms. Crypto venture fund Hashed lost more than USD 3.5 billion and the government in Seoul has created a new financial oversight panel with the ominous acronym DEATH. Terra CEO Do Kwon has been summoned to testify at government hearings. A number of Korean law firms have initiated class-action lawsuits on behalf of consumers and investors, while prosecutors are investigating Terra for signs of intentional price manipulation.
Reports in Korean media say that the Seoul Prosecutors’ Office has also subpoenaed former employees of Terraform Labs who were involved in developing the Terra ecosystem prior to its launch in 2019.
There has been speculation that developers expressed doubts about the TerraUSD (UST) stablecoin design from the very start and even warned founder Do Kwon that the algorithm which maintains the coin’s US Dollar peg could eventually fail. It's been alleged that Kwon ignored the warnings.
Now prosecutors want to know if Kwon was aware of those issues while also looking into potential price manipulation by the company.
Additionally, Korean authorities are looking again at domestic cryptocurrency exchanges to see if they undertook required review processes before listing UST and its sister token LUNA.
A report in Korea’s national newspaper the Korea Herald on Tuesday claimed that Terraform Labs, the Singapore-based company behind TerraUSD and Luna, shuttered its South Korean office last year to avoid paying local taxes.