Why Telegram Abandoned the TON Project

Ivan Skladchikov
May 14, 2020
Why Telegram Closed Ton

On May 12, 2020, Telegram announced the termination of its TON (Telegram Open Network) project. Therefore, the legal battle that started last October is finally over. Unfortunately, Telegram has lost it, leaving many investors and believers bitterly disappointed.

TON: What They Wanted It to Be

Telegram Open Network (TON) was to become a multi-blockchain platform using the Proof-of-Stake (PoS) consensus protocol. The ambitious goal was to provide mainstream users (including the Telegram community) with a friendly blockchain environment for various decentralized applications and cryptocurrencies.

The Telegram founders sought to create a scalable and fast system that would be free from the main problems of the existing blockchain networks. If things had gone according to the original plan, it could speed up cryptocurrency mass adoption.

“Unfortunately, a U.S. court stopped TON from happening.”

Pavel Durov, the Telegram founder, has officially declared that the project with “the potential to revolutionize how people store and transfer funds and information” is dead. The New York’s Southern District court prohibited the company to distribute their tokens anywhere in the world

Let’s follow the series of unfortunate events that resulted in this situation.

Pavel Durov, the founder of Telegram, before he abandoned his blockchain plans. Image source: BITSONLINE

Telegram: Brief History And Milestones

Pavel Durov and his brother Nikolay, the founders of the popular Russian social media network Vkontakte, founded Telegram. It’s a platform that allows users to exchange text and voice messages, photos, videos, and other media files, and create large groups. The main advantage was security. To protect their users’ info, Telegram applied 3-layer encryption and used multiple servers distributed across several jurisdictions. This commitment to security and decentralization attracted a lot of libertarians and crypto enthusiasts.

By February 2016 Telegram had reached an impressive mark of 100,000,000 users. They were sending up to 15,000,000,000 messages a day.

By March 2018, there were over 200,000,000 monthly active users. The founders decided that such a community would be enough to give cryptocurrencies the mass support they needed. The upcoming Telegram coin (GRAM) was to fuel the new blockchain ecosystem. In many ways, the project was similar to Ethereum and Libra by Facebook.

The Telegram ICO ended on July 13, 2019, and raised $1,700,000,000. Image source: ICO Drops

The TON Project

During the closed ICO that took place in early 2018, Telegram founders raised as much as 1.7 billion dollars from private investors. The list of contributors included such personalities like Abramovich and Solonin. Though the developers rescheduled the launch, they promised that the platform was almost ready. The test net was to be started in early 2019, but this deadline was shifted, too.

In spring 2019, some organizations tested the platform. They didn’t share exact numbers but appreciated the high speed of transaction processing. The developers also scheduled some scalability tests, to get the token ready for general use. The exact date of the network launch was not announced, but Durov promised it would happen before October 31. Otherwise, the TON project investors had the right to withdraw their money.

Long story short, the launch didn’t take place. In October 2019, the Securities and Exchange Commission (SEC) obtained a restraining order against Telegram. It was the beginning of a long legal battle that ended in May 2020.

According to the Howey test, the Telegram ICO can be seen as a sale of securities. Image source: HashTelegraph

The Legal Problems: What Was the Point

It is no secret that the U.S. regulators are not big cryptocurrency fans. We all remember Mark Zuckerberg’s public grilling in Congress last year when he had to answer hundreds of tough questions about his Libra plans. As you know, Facebook no longer intends to continue with the project which has caused so much trouble. 

In the case of GRAM, the SEC accused the company of “conducting an unregistered digital token offering in the U.S. and overseas”. During their fundraising campaign, the TON issuers sold more than 1 billion grams to American investors. The complaint of the Securities and Exchange Commission was that Telegram Group hadn’t duly registered their ICO as a sale of securities. Thus, they broke the federal law.

According to the regulators, the GRAM issuers labeled their product a digital token just to avoid complying with the Securities Act. Their ultimate goal was “to flood the markets with billions of unregistered securities”.

Pavel Durov’s post, announcing the termination of TON.

TON: Rest In Peace

In March 2020, it became very clear that the SEC had good chances to win this fight.

In the end of April, Pavel Durov suggested the investors should withdraw their funds from the startup. Finally, on May 12, the company abandoned the TON project. Thus, the Telegram Open Network repeated the destiny of Libra.

Durov declared the company’s surrender in his blog. He also made some bitter comments about the U.S. decision-makers being a major obstacle for the rest of the world, when it comes to finance and technology.

“I want to conclude this post by wishing luck to all those striving for decentralization, balance and equality in the world. You are fighting the right battle. This battle may well be the most important battle of our generation. We hope that you succeed where we have failed,” he added.

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