Telegram TON ICO – Where is the investors’ cash?

Back in January 2018, Telegram launched the initial coin offering (ICO) to raise funds for a blockchain project. Telegram TON ICO became the second largest in history with roughly $1.7 billion raised. However, almost two years after, the company has nothing to show to its initial investors.

  • Where is the money?
  • Are they going to launch the mainnet?
  • When will Telegram distribute tokens to investors?
  • When will Telegram list tokens on exchanges?

These are all valid questions investors may want Telegram to answer. Nevertheless, the answer may be rather complicated and out of Telegram’s hands.

“Don’t miss the hype train”

Any time an established name enters the crypto market, the hype train starts rolling. Especially if that somebody is one of the biggest names among online social platforms. Thus, carried by the ICO boom of late 2017, Telegram launched its own utility token offering. Needless to say, crypto enthusiasts were ecstatic.

In two rounds of the ICO, Telegram raised a stunning $1.7 billion. The hype was so real that Pavel Durov’s company had to restrict the initial token release to 2.9 billion. Otherwise, people would continue buying more. Considering the fact that there was no public token sale round, the sum sounds even more insane since it is spread across only 171 investors. The pre-sale and Stage A funding rounds both reached the $850 million limit as investors initiated a gold rush-like atmosphere from February to March 2018. Initial investors were able to acquire GRAM tokens for as low as $0.38, and, naturally, expected a huge return on their investment.

Nevertheless, it seems that $1.7 billion wasn’t enough for Telegram to release the product they promised to launch until October 31st, 2019. On the contrary, Telegram decided to conduct a limited public offering. The round started on July 10th and ended three days after with GRAMs sold at $4 apiece.

Telegram TON ICO promises

So, why did investors hurl to get their hands on Telegram’s GRAMs?

Obvious is the fact that Telegram is a huge name with more than 300 million users worldwide. But there were also some serious promises and plans revealed upon the ICO launch.

From the technical side, Telegram is developing TON (Telegram Open Network) as a fast, secure, and scalable ecosystem. So much so that it should be the only one capable of handling millions of transactions per second. By succeeding, the Telegram team would produce the only blockchain system able to truly compete with the traditional, centralized payment channels. Analogically, that would bring a massive profit for early adopters and investors.

However, despite the gigantic resource pool and huge ambitions, Telegram still hasn’t fulfilled its promise. Investors are yet to receive GRAMs, and the main network is yet to see the light of day. In fact, the October 31st launch date is long overdue.

Telegram TON ICO milestones
Source: icobench.com

The two extensions

Obviously, TON has an unquenchable thirst for funds. Moreover, TON development is even more time-consuming than it was originally anticipated. Nevertheless, it seems that investors will hold their GRAMs and await the long-anticipated chance to cash out. In fact, the mainnet launch and ICO extensions made Telegram offer a refund to investors.

Investors declined.

And rightfully so. They acquired one GRAM for $0.38 and those who came in later did the same for $4. that means that, basically, they have a guaranteed profit. Of course, under the assumption that the latter group will refuse to sell below the paid value.

Questions that naturally arise from these facts are the following:

  • Considering the money-hungry and delayed project, why do investors still pour cash into TON in 2019?
  • If Telegram needed the extra round of funding in 2019 to successfully develop TON, how come that they can afford to offer a refund?

We’ll leave the pleasure of answering these to our beloved readers.

Telegram TON ICO has problems with the SEC

During the initial crowdfunding round in 2018, Telegram sold a billion tokens to 39 US residents, cashing in $424.5 million. To remind you, that was before the SEC started seriously clamping down on such ventures. Nevertheless, a bit retroactively, the US SEC found the time to analyze the Telegram’s TON ICO.

On October 11th, 2019, they have published an official press release regarding the matter. According to it, the SEC has, after filing a 31-pages long official complaint, obtained a temporary restraining order against Telegram. The two offshore entities tied to Telegram have, allegedly, conducted an unregistered digital token offering in the US and overseas, taking the $1.7 benefit in the process.

Regarding the matter, Co-Director of the SEC’s Division of Enforcement, Stephanie Avakian, stated:

Our emergency action today is intended to prevent Telegram from flooding the U.S. markets with digital tokens that we allege were unlawfully sold. We allege that the defendants have failed to provide investors with information regarding Grams and Telegram’s business operations, financial condition, risk factors, and management that the securities laws require.

GRAMs are securities

The principle for SEC’s accusations comes from the fact that the US jurisdiction ruled GRAMs to be securities. Therefore, the company issuing the tokens would have to abide by the rules established by the Securities Act of 1933, which Telegram failed to do. Nevertheless, Telegram applied for Regulation D a year ago but the US government denied the permit.

We have repeatedly stated that issuers cannot avoid the federal securities laws just by labeling their product a cryptocurrency or a digital token,

Explained Steven Peikin, Co-Director of the SEC’s Division of Enforcement before continuing with further allegations;

Telegram seeks to obtain the benefits of a public offering without complying with the long-established disclosure responsibilities designed to protect the investing public.

Telegram to halt the GRAM distribution?

If there was hope that the latest token distribution extension would be the last, that chance is now gone. On November 27th, the news rolled out that the New York Southern District Court called Telegram’s executives to testify. District Judge P. Kevin Castel singed the letter by which Durov, along with Shyam Parekh and Ilia Perekopsky should appear before the court in the time span from December 16th to January 8th.

This means that the postponement of GRAM token’s distribution is highly possible, at least until the final date of the hearing. These court orders are valid exclusively for the company’s business in the US. However, considering the amount raised in the country, it can prove to be a huge setback for the project.

Telegram ICO

Again, questions naturally arise if the US GRAM distribution ban prolongs deep into 2020:

  • Will Telegram distribute the rest of the tokens to investors from other jurisdictions?
  • If they don’t, how will other investors react to punishment for the problems outside of their jurisdiction?
  • If Telegram distributes tokens to other jurisdictions, how will the 39 US investors react for being left behind in the highly volatile market?

The desperate situation

Telegram is now in a seemingly desperate situation. The fact is that, by failing to comply with the regulations, they can’t proceed with the development. However, after the initial hearings, there are those scheduled for February, and Telegram’s leaders seem optimistic as they explain,

At these hearings, they should only consider the possible postponement of the launch of the platform. We and our advisers will use the time to ensure that at the February hearing, the Telegram position is presented and supported as much as possible.

Despite the team’s optimism, there is a strong possibility that Telegram TON ICO will lose some of the important markets. Most importantly, the US, and, quite possibly, Chinese. Meanwhile, the EU is going to closely monitor the ongoing events. Therefore, if Telegram’s ICO will be proclaimed as an unregistered security offering, this jurisdiction is also going to forbid the distribution of GRAMs. Moreover, Telegram can completely forget about Russia, since Pavel Durov already fled the country after conflicting with the government.

Telegram TON ICO aftermath expectations

Telegram APp

In order to better explain the core of the GRAMs problems, let’s compare it to Facebook’s Libra. Both have close ties to major online social platforms with millions of users. They have a similar use case and, in the eyes of the government, look to become substitutes for the traditional payment system.

The thing in which they differ is that while Facebook was always looking to collaborate with the government’s watchdogs, Telegram took the alternative path. They started the TON project in a rather obscure environment, neglecting the obvious possibility of the upcoming crypto-related regulations. Also, Libra is to be a stablecoin with 1:1 US dollar valuation, while GRAM’s future price is to be decided by the free market. In that sense, Telegram may just avoid the extra scrutiny from the government’s ranks.

ISIS, Al-Qaeda, Hamas and the Muslim Brotherhood in a potential relation to Telegram’s TON

However, the best way to describe the regulators’ overall stance towards Telegram is to quote the Washington-based Middle East Media Research Institute report which says:

“There is evidence that terrorist groups like ISIS, Al-Qaeda, Hamas and the Muslim Brotherhood are using Telegram and other social media platforms to raise cryptocurrency.”

Authorities asked Durov to take immediate action against any documented evidence of terrorists using the Telegram platform. However, it remains a mystery if the founder of Telegram took the required precautions.

Are the promised feats possible on the blockchain?

In the article about ICOs published in December 2018, Bloomberg refers to Telegram TON ICO as suspicious stating:

The money raised may be used for the messaging service instead for new products. Many investors doubt that the technical feats Telegram promised are possible with blockchain technology. The company could not be reached for comment.

If we add that suspicion to the equation, there is a slim chance that the US SEC is going to change their point of view towards GRAM tokens. Moreover, Therefore, it will be more than interesting to see what Telegram is going to do with the token distribution.

If the SEC remains firm, Telegram will have to refund the US investors and pay a substantial fine. The 39 big holders from the US, with American VC Benchmark and Lightspeed Capital as the most notable, acquired GRAMs at the lowest prices. It is possible that without them, the price of the token is going to plummet immediately, forcing those who invested at the higher price to sell in the loss.

In the end, all this commotion around TON and the token distribution bring really bad publicity to the project and its development team. If GRAMs are going to be serious contenders for some of the top spots in the crypto market, the team can afford to disappoint neither the holders nor the potential investors.

Are you a TON ICO investor? Let us know what you think in the comments section below the article.