The choice between the ideal of the permissionless era and the compliance moat

Original author: ale xzuo (X: @alexzuo4 )

Recently, more and more people are complaining that the USDT fees charged by the TRX network are too high. This is indeed an interesting phenomenon.

Data as of August 31 shows that on the Binance platform, using TRON to withdraw USDT requires a handling fee of 2 USDT, while on the OKX platform, the fee is as high as 3 USDT. These fees are close to the level of the Ethereum mainnet, which requires 4 USDT and 3.82 USDT in fees on Binance and OKX respectively.

However, despite the increase in fees, the activity of the Tron network does not seem to be significantly affected. According to Lookonchain monitoring , the gas fee income of the Tron network in August reached 61.43 million US dollars, a month-on-month increase of 46.54%.

This means that even if transaction fees increase, user demand for the TRON network remains strong.

Looking at the entire industry, stablecoins are the only field with real application scenarios after Bitcoin, and they can remain stable in bull and bear markets. After all, even in the current political environment, the flow and settlement of global capital will only become more and more dependent on offshore crypto-dollars. Therefore, even in the most severe bear market, the number of stablecoin transfers has not decreased significantly.

TRON chain has always been the boss in the field of stablecoin transfers. In order to quickly occupy the market, Sun Ge adopted a subsidy policy in the early stage, first monopolizing the exchange transfer market segment, and then expanded to all payment fields. In the bull market of 2018, due to the extreme congestion and high fees of the Ethereum network, TRON ushered in a greater traffic growth. Although DeFi applications mainly run on Ethereum, in order to save costs, users often use decentralized platforms for cross-chain operations, especially during peak periods, and each transaction can save forty or fifty dollars through TRON operations.

Although the transfer fees of the new second-layer chains, Solana, and TON are cheaper than TRON, and the transfer experience is not inferior, many users seem to have become accustomed to the stability of the TRON network and have not migrated to these new chains on a large scale. Wallet transfers between exchanges still mainly rely on the TRON chain.

The recent increase in TRONs transfer fees is partly due to technical issues, such as the issuance of various Meme tokens that led to network congestion and rising basic costs. On the other hand, the price increase seems to be a test of market compliance. Since everyone cannot do without the TRON network, it is only natural to increase prices appropriately to expand profit margins. From an economic point of view, when a company reaches a market monopoly, it usually chooses to increase service prices to increase profit margins. This is just like when Didi and Meituan chose to raise prices after subsidizing taxis and food delivery. This is an inevitable choice for capital and the market.

However, we also need to reflect on whether Suns judgment is correct: Has TRON really formed a monopoly in the field of stablecoins? Not to mention that USDT has competitors such as USDC and AUSD, USDT itself is also distributed on multiple issuance networks. The market performance in the next few months will tell us whether the price increase will lead to changes in the market share of stablecoins.

What is more worth discussing is that when the permissionless economic model enters a mature stage in market competition, can the first movers continue to maintain competitiveness and expand profits by raising prices?

In my experience working in the cryptocurrency custody industry, after six or seven years of development, the industry has gradually shrunk from dozens of competitors to 10 major players worldwide today. Although Cobo leads in Asia, we are still in a state of heavy RD investment and highly sophisticated competition. Our competitors are also constantly engaging in price wars and launching innovative products.

Over the past year, we have seen competitors begin to build deep moats through compliance measures in certain segments. It should be noted that compliance supervision often lags behind the development of emerging industries, and there is a huge policy dividend period here. When policies become clearer, industry participants will quickly differentiate due to the scarcity of licenses. Companies that do not participate in policy making will face increasing challenges.

For example, while Asian custody companies are still discussing how to communicate with regulators, the government relations (GR) fees of overseas companies have become one of the main expenses. After failing to apply for the regulatory sandbox for the first time, a well-known British custody company hired the Big Four accounting firms to provide regular industry-based training for regulators and hired the former British Chancellor of the Exchequer to join the board of directors. Lets look at Coinbase. Although its custody business has always adopted a relatively conservative cold storage solution, it has occupied more than 95% of the ETF custody market share after the ETF was passed. This is inseparable from the long-term lobbying efforts of its founder and team in the United States. This year, Coinbases ETF custody fees are estimated to reach $100 million in revenue. Only Fireblocks in the industry can achieve such a revenue scale, while Coinbases business scenarios are relatively simple. In these niche areas and regions, it will become increasingly difficult for other companies to enter these areas, no matter how mature the technology is.

If an industry faces global competition and has a huge market pie, then a more prudent approach is to build entry barriers through licenses in segmented fields and gradually transform unlicensed industries into licensed industries.

Ethereum and other permissionless economic models that rely on strong communities and algorithmic incentives, although once regarded as the future financial operating system, are now beginning to face a crisis of faith. Technological leadership and community developer advantages are certainly important, but in the eyes of capital and the market, a license seems to be more telling. The orthodoxy we are talking about may not necessarily form a moral constraint on latecomers when larger players and capital enter the market.

From the evolution of the stablecoin market to the standardization of the custody industry, we are seeing a rapidly changing cryptocurrency world that is trying to find a balance between the concept of decentralization and real needs, between barrier-free access and sustainable development, and strive to find a viable path.

Ultimately, the market鈥檚 choice may be more realistic: rules and regulation will determine who can gain a foothold in the long run, and the ideal of permissionlessness may face a more severe test.

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