Justin Sun Supports TRON Proposal to Reduce Block Rewards to Increase Deflationary Pressure, Similar to Bitcoin Halving

TRON may reduce TRX block rewards, creating an economic model similar to Bitcoin’s halving to counter inflation’s effects and provide long-term value for TRON holders. The proposal is currently being discussed amongst TRON developers and traders. Justin Sun, TRON founder, suggests reducing block rewards could further reduce inflation, and higher prices would offset the new costs. The move would drastically change TRON’s economic model, adding extra functionality akin to Bitcoin’s original design.

The proposal suggests reducing block rewards and balancing the economy of TRON so that users are encouraged to participate in staking. This would reduce the dilution of token value, which results from overproduction of TRX, a phenomenon that occurred frequently during the early stages of the token. However, this may need to be balanced to allow for better supply-demand dynamics. 

TRON plans to transition from inflation to deflation to align the structure of its block rewards with the token’s maturity. It needed inflation in the early stages of the project but may need more deflation now that the token is mature and people are seeking an inflation-proof asset like gold or Bitcoin.

Justin Sun claims TRON is in a deflationary state of 1% per year, making it one of the only major cryptocurrencies with this feature. He also claims that higher TRX prices offset the reduction in block rewards. Therefore, given the token’s deflationary nature, a further reduction in block rewards wouldn’t hurt and wouldn’t have to be too much.

“This proposal suggests,” wrote Jamestepforward, TRON developer, “reducing the TRX block rewards. The adjustment aims to create a more balanced supply-demand dynamic that encourages increased user participation in staking. This will benefit all stakeholders, ensure the TRX block rewards consistent with the maturity of the TRON network, and promote the healthy and sustainable development of the TRON ecosystem”.

Justin Sun explained to investors through his X account that the changes would not adversely affect TRON validators. Validators don’t rely solely on block rewards for their income. They also get income from transactions and other network activities, thus mitigating the effects of lower block rewards.

The proposal models the effects of block reduction, arguing that a 20% to 50% block reduction would result in a drop in inflation from the current level of -0.81% to a range between -1.20% and -1.78%. The reduction may make TRON more scarce, leading to upward pressure on the market and providing a store of long-term value like gold. On the flip side, stakers may be negatively impacted in the short term, and transaction fees may be disrupted.

TRON could, like Bitcoin, benefit from reduced block rewards. The modeling further shows, using a back-of-the-envelope analysis, that blocks reduced by 1 million TRX would create 1.5% deflation per year, a 50% increase in deflation. Blocks reduced by 2 million TRX would create 2% deflation per year, a 100% increase in deflation, essentially doubling the deflation and implementing TRON’s version of the Bitcoin halving.

The proposal considers the impact of reduced block rewards on the role of validators in the network. Validators are essential to securing the network, so a reduction in their rewards needs to be considered carefully while also, equally seriously, the inflation rate of the token. Sun mentions that validators have diverse income streams, including transactions, to mitigate the risks of increasing the deflation rate.

TRON’S DEX volume dropped from $299 million to $121 million, possibly indicating a short-term drop in price. Lower network activity can sometimes indicate lower prices. Three years ago, when TRX hit $0.38, the DEX volume hit $299 million.

Solana, however, failed to reduce block rewards because validators voted down the proposal. The SIMD 0228 proposal could not gain approval because many small validators were worried about its negative effects. Justin Sun, however, believes the benefits of block reduction far outweigh the negative effects because validators have a diversified portfolio of income streams, and deflationary measures put TRON on par with long-term assets such as gold.