In this 3 part series I am trying to look at two sides of the same coin - Tron. I am trying to look at the pros and cons and the good with the bad.

So far we have looked at:

Part 1 - Transactions and Scalability

Part 2 - Dapps

And for Part 3, we're going to take a look at Tron's governance and decentralization.

How does it work?

Tron uses a Delegated Proof of Stake governance model as opposed to Proof of Work or Proof of Stake. What this means is that as a Tron holder you can freeze and vote for a Super Representative to validate blocks on your behalf. For Tron there are 27 Super Representatives (SR), the top 27 vote-getters, that produce blocks. These SRs receive rewards for producing blocks and for getting votes at the end of a 6 hour round. If an entity or individual does not have enough votes to be in the top 27, they are considered a Super Representative Partner or Candidate depending on their rank. These other groups do not produce blocks but are still able to take part in the governance by putting forth proposals to change the network. The SRs then vote on these proposals. SRs and SR partners receive Tron rewards for producing blocks and voting rewards based on their share of votes out of the total votes.

Benefits of Freezing/Staking

When you freeze your Tron and are given the opportunity to vote for an SR, you also typically receive other benefits. As mentioned in part 2, when you freeze your Tron you are able to earn either bandwidth or energy, both of which are useful in transactions and interacting with smart contracts. Additionally, freezing and voting can allow you to receive staking rewards. Each SR typically has a different payout rate and method, with some paying in their own token or some rewarding voters with extra rewards who vote for a certain number of cycles. This also gives you the benefit of researching and picking an SR that is best for the overall Tron blockchain, which leads me into the main part of this post, the pros and cons of Tron's decentralization.

First Side of the Coin - Tron holders help determine the future of Tron

Your vote for SR can be very important. Yes, it can often determine your rewards, but SRs are the backbone of Tron's governance. SRs and SR candidates are able to propose changes to the blockchain to improve it for all users. This allows Tron to continuously and easily adapt to different situations. For example, a candidate or Super Representative may put forward a propsal to change voting rewards, the amount of bandwidth, the cost to issue an asset (token) or a number of other possibilities.

This is the main positive aspect of Tron's delegated proof of stake. As a voter you are often incentivized through rewards, but it also incentivizes active members of the community who research candidates that help improve the protocol. Voting records of the Super Representatives are easy to view on Tronscan, so you can see their history of voting.

On that note, there are many great SRs and SR candidates, but the system also allows anyone to become a candidate. To do so you simply apply and burn a certain number of Tron. Of course, that's only part of it, because you still need others to vote for you with their Tron! But my point is that if you see a problem with Tron, you can become part of the solution. If there is a bad actor, you can vote them out. If there is a great member of the community with great ideas, you can support them.

Second Side of the Coin - Might not be as decentralized as you'd think

Now I'm going to put on my critical hat and look at it from the other side, looking for problems with this model. I have a few questions that we might not know the answer to until it is too late and one potential issue that is developing.

The first question that comes to mind is - is 27 enough? If you think about Tron's network as a country, with its users the citizens, would you want your country of more than 7,000,000 accounts run by only 27 individuals?

Related to this question is my second question: Can an individual or entity take full or majority control of the network? It would take a significant amount of Tron to do this, but it may be possible. Along this line, one of the most common criticisms of Tron is the strong influence its founder, Justin Sun, and the Tron Foundation have on the network (for better or worse). How much control of the network should these entities have? Should the network be controlled by the community or businesses and founders or both?

Third, do high staking rewards encourage Tron holders to chase yield instead of focusing on what is best for the network? Smaller community-focused SRs might not be able to pay at the same rate as a massive operation when including the cost of maintaining nodes and processing blocks, which could limit the percent they pay to voters. This could lead to more votes in the hands of the big guys.

Fourth, what are the long term implications for the current reward structure? With this question I want to look at inflation in Tron's network. Remember, there are two main sources for new Tron to enter the network - block rewards to SRs that produce blocks and voting rewards that are based on the number of votes an SR or SR partner receive. And remember from part 2, the primary way that Tron is burned would be from running or interacting with smart contracts without enough energy. So let's take a look at 3 figures for a particular day - block rewards, voting rewards, and Tron burned.

On 7/24/2020,

Block rewards = 459,968

Voting rewards = 4,599,680

TRX burned = 302,175.48717

(Source: Tronscan)

So with a little bit of math...

459,968 + 4,599,680 - 302,175.48717 = 4,757,472.51283 net change in TRX

A one day increase of 4,757,472.51283 brings the total supply on 7/25/2020 to 100,865,312,219.59572.

Looking at a larger time frame, the total supply on 4/25/2020 was 100,420,180,845.08977, so there was an increase of around 445,131,374.5 or 0.44% in 3 months. To different users this is either significant or insignificant. And I want to point out that inflation is not unique to Tron in crypto or elsewhere, but to change this there has to be an increase in usage (more energy being used) or a change in the reward structure.

Now again, the system is designed in many ways to prevent a lot of these issues and it highlights the importance of Tron holders doing their research. Just because an SR has a huge number of votes, does not mean that it gets more of a say in how Tron is governed. And ultimately the Tron holders are the ones that decide which organization or individual will represent them by using the power of their votes.

For example, there was a recently adopted proposal that saw Tron's governance in action. A proposal was put forward to adjust downward the amount of energy distributed across the network in the hopes of limiting inflation. There were votes in support and votes against, and we may yet begin to see its full effect on the network and inflation. Your votes help determine which SR gets to vote on proposals and produce blocks, and there is a lot of information to consider to make an informed decision. 

Conclusion

I first want to thank everyone for reading my three part series on the two sides of Tron. When I started typing away I had no idea the amount of traction these 3 posts would generate, and for that I am very grateful that you took the time to read and comment :)

I hope that I helped your research by highlighting the pros and cons of Tron's scalability, dapp economy, and governance. With any coin or token, I try to see it from multiple perspectives and I believe it is always good to challenge yourself and your own opinions. I am not recommending to buy, sell, hold, or not hold Tron, but I hope that you enjoyed this three part series and I hope to start a conversation on Tron and other coins.

Finally...

1. Please like, comment, and follow for more updates.

2. If there is another topic or token that you'd like me to cover in a similar (or different) way, please let me know :) I welcome feedback and suggestions.

I am grateful for this great community!