I'm using the Dynon as an encoder as well. I have a Garmin GTX-320A transponder which only accepts gray code, so I needed the serial to gray code converter from Dynon.
Originally I was going to use a standalone encoder for my transponder, but I had a hard time locating a place to put the encoder (and my setup is SIMPLE). I bought the Dynon converter which is tiny and mounted it on the subpanel. It works great. As mentioned already, you can just set the Dynon to 29.92 (very fast with the preset button they have in the menu) to see exactly what your Dynon is sending to the transponder.
I finished my airplane in a huge hangar I shared with an avionics shop so I had them do a transponder check -- mainly because I was just curious if the darned thing worked. Yep, it worked like a champ and continues to work great.