Trust Wallet Token: Fading A Narrative Trade (TWT-USD)

One of the top performing assets in the cryptocurrency market over the last two months has been Trust Wallet Token (TWT-USD). Trust Wallet is a self-custodial crypto application that allows users to hold cryptocurrencies off of exchanges. Since the collapse of FTX (FTT-USD) in early November, very few crypto tokens are actually up. Trust Wallet Token is one that is still 40% higher than where it was in early November while Bitcoin (BTC-USD) and Binance Smart Chain (BNB-USD) are both down over the same timeframe.

What has helped propel TWT higher is that self-custody of crypto is becoming fashionable and the token has benefitted from a narrative trade tailwind following the FTX disaster. However, despite being a self-custodial wallet, Binance actually owns Trust Wallet after purchasing it in 2018.

Narrative Trade

Like Celsius (CEL-USD) and Voyager (OTCPK:VYGVQ) before it, FTX is yet another failing of a centralized cryptocurrency exchange. Despite decentralization and self-custody being some of the core principles of Bitcoin advocates, most of the trading that happens within the crypto industry is through centralized companies rather than through decentralized protocols or exchanges known as DEXes. This reliance on third party custodians rather than self-storage of funds has clearly created problems with trust in the crypto industry. This diminishing trust in centralized custody has led to a substantial move higher in some of the self-custodial wallet tokens including TWT.

Wallet Usage

According to BscScan, there are over 300K TWT token holders. The Trust Wallet website claims more than 25 million people are using the wallet. However when we dig into some of the platform usage metrics, we can see that daily active usage might be a bit underwhelming considering the quoted number of wallet users:

Trust Wallet Usage via 1inch	DAU	Trades	Daily Volume
Binance Chain	4,935	6,794	$3.7m
Ethereum (ETH-USD)	806	1,157	$8.0m
Polygon (MATIC-USD)	2,576	3,620	$0.9m

Click to enlarge

Source: Dune Analytics/revoak, 7 Day averages

1inch (1INCH-USD) is the leading DEX aggregator used in DeFi. Depending on the day, 1inch touches anywhere from 60-80% of the DEX traffic on Ethereum. It isn’t the only DEX aggregator and these figures aren’t absolute. But these metrics are a good picture into how the Trust Wallet application performs from a daily usage standpoint. In a typical day, there are a little over 8 thousand daily active users accounting for about $12.6 million in trading volume combined among Polygon, Ethereum, and Binance Smart Chain.

Despite the low number of users and trades, the general trend in swaps for Trust Wallet is positive on Binance Smart Chain.

On Ethereum, the trend is a little more flat and we’re seeing the same on Polygon as well.

Tokenomics

TWT has been a phenomenal trade over the last several weeks but that doesn’t necessarily mean the token itself has good tokenomics. What gives any application-based token a fundamental purpose is either governance or some sort of utility within the application. This is indeed the case for Trust Wallet Token. Users of the Trust Wallet can expect reduction on fees and DEX services within the platform when they hold TWT. Holding the token also offers governance over the protocol but I don’t think that’s a valid utility unless voters are active and the ownership of the token is as decentralized as possible.

From a circulating supply perspective, TWT has a very odd back story. According to the wallet site, 89 billion TWT tokens were burned due to very slow emissions:

As TWT continues to become a more established token, we took some time to study the market and evaluate the current tokenomics of TWT. The total supply began as 90 billion TWT, and despite continuous token distribution, less than 1% of the total supply was circulating. Therefore, we made the decision to burn 89 billion TWT to reduce the total supply to 1 billion TWT.

Given the massive reduction in max supply, I’d expect the circulating supply to be larger than it currently is;

• Max supply: 1 billion
• Circulating supply: 416.6 million

With just under 42% of the max supply in circulation, there is a substantial amount of dilution remaining in the token. A glance at the token holder distribution shows 78% of the total supply is held by one wallet.

This wallet is the BSC Token Hub wallet and it means that TWT goes as Binance says it goes. Binance was able to prick the FTX bubble because of a position that it held in FTX Token. Even though Binance actually owns Trust Wallet and doesn’t figure to have anything to gain from dumping TWT, I think this level of token centralization from an application that is designed for the opposite is a problem.

Risks

There has been a lot of FUD lately about Binance and BinanceUS. While I like the idea of a self-custodial token that has in-app utility, I personally can’t reconcile that Trust Wallet Tokens, and Trust Wallet for that matter, are really under the control of one central body. It goes against the entire point of self-ownership to have a self-custodial wallet application owned by the biggest exchange in the world.

Summary

Binance as an entity and an ecosystem has a substantial amount risk at the moment and I personally can’t get behind the idea of having too much exposure to this entity from an investment perspective. To be clear, that goes both for the exchange itself, and the applications that are built in the company’s public blockchain ecosystem. I’m a large supporter of self-custody and decentralized applications. My personal wallets of choice are Unstoppable and ShapeShift and I’ve covered a decentralized wallet token for BlockChain Reaction subscribers previously.

When it comes to managing assets through a wallet application, I have never personally used Trust Wallet but it does have strong reviews and a 4.7 average on 191K iOS ratings. But strong reviews and a great application don’t necessarily mean you need to hold the token. For a platform that boasts 25 million users and a token that is supposed to provide in-app utility for those users, just a few thousand daily active users and 78% of the tokens being held on exchanges doesn’t exactly give much confidence that the app users feel the token is necessary. If you’re a sophisticated trader, the TWT rally is one that you can probably fade.