On April 30, the confrontation of the Telegram messenger with the American court and the Securities and Exchange Commission (SEC) entered a new phase: it dragged on for another year.
Some experts praised this postponement as a delicate strategic move, increasing the chances of Pavel Durov’s company for a final positive solution to his problem. Other experts were discouraged on the grounds that the de facto creators of the TON network yielded to state pressure and thereby canceled the onset of the kingdom of heaven on earth — recall that paradise should reign as a result of total blockchainization and bitcoinization of everything and everyone. This idea has been crypto‐enthusiastic for three years in a row.
But, in our opinion, there is nothing revolutionary in TON. In short, this is a battle between the creators of the Telegram messenger and American justice, and this is an absolutely private affair of Mr. Durov and his business. This battle is marginal and has nothing to do with technological progress, and even less so with the prospects of popularizing the ideas of cryptorevolution in the world.
A brief chronology of the TON blockchain:
In December 2017, the Cryptovest news agency specializing in encryption technologies, judging by subsequent events, authorized the leak of information about the Durov brothers” new project — TON (Telegram Open Network). The TON blockchain and its Gram token have positioned themselves as a revolutionary breakthrough that eliminates the inability of the main cryptocurrencies (bitcoin and ether) to captivate the broad masses.
Bitcoin and ether process transactions too slowly, are too complicated to understand and are not oriented to the market of goods and services. TON / Gram promised to solve these problems through advanced technology (advanced in terms of scalability of the Proof of Stake variation) and the presence of a unique launching pad — 200 million users of the Telegram messenger. TON / Gram are designed to transform Telegram from a messaging platform into a full‐fledged “Internet of money”.
TON conceived during the cryptocurrency hype
The historical context in which the project of the Durov brothers was born is such that in 2016 – 2018 under the guise of cryptocurrencies spread unsecured digital wrappers, called big names with a token, and centralized databases were presented as blockchains.
The peak of the price bubble, which lifted to the heavens the exchange capitalization of shitcoins (garbage tokens) fed to investors in exchange for their savings, came in December 2017, and it was at that moment that information about the launch of the TON / Gram project flowed into the public field.
In my opinion, it’s still not worth attributing to Telegram criminal or simply ethically questionable intentions. In December 2017, when the decision was made to raise money, everyone had enchanting expectations in society and no one knew that within a month the cost of the overwhelming majority of junk tokens in the crypto market would depreciate almost to zero.
It is significant that even in conditions of mass euphoria, the Durov brothers refused the public offer of ICO in favor of a closed fundraising limited by qualified investors. Although the choice of an alternative form of agreement was explained, of course, not by moral distress, but by a necessary necessity, which became apparent after the American Securities and Exchange Commission (SEC), the only state structure in the world that really protects the rights of investors, announced in July 2017 year war ICO. The new form of the contract, which the Durov brothers decided to use, was called the Simple Agreement for Future Tokens, SAFT.
Lyric digression about SAFT
The meaning of SAFT is that project financing is carried out in closed, non‐public conditions. Only qualified, usually corporate, investors can take part, who give money for the development of the project in exchange for a promise to receive digital assets (tokens) at some point in the future, when the project is launched and these tokens themselves will be generated.
It is worth saying that the sole purpose of SAFT is to circumvent the SEC ban on organizing ICOs, which in the overwhelming majority of cases have manifested themselves as a divorce of ordinary investors for money. All the talk that SAFT is qualitatively changing the legal basis of financing, and the participation of exclusively «qualified» and «accredited» investors removes the risks — this is «ears‐on‐ear» for the poor. For the poor in the truest sense of the word: the criterion of a tight wallet is the key to getting the right qualifications and accreditation.
For reference: If you try to open a brokerage account from the street, you will be set many restrictions: a ban on trading derivatives, a ban on the use of complex option strategies, a ban on margin accounts, a ban on short‐term stock trading, etc. To obtain the required level of access, you will have to fill up the broker with diplomas and certificates proving your competence. However, it’s worth you to deposit from the 30 thousand dollars to the brokerage account and, all doubts about your qualifications with the broker and the regulator will be completely removed (in the Russian Federation — from 100 thousand dollars).
The only thing that the SAFT agreement does is change the poor investors, who do not understand anything in cryptotechnologies, to the rich investors, just as they do not understand anything in these technologies. Is it any wonder that the SEC accepted the trick with SAFT with hostility just like it had rejected the ICO agreement before?
SAFT is not sweeter than ICO
The 1 billion 700 million dollars collected by Telegram, as a result of a closed proposal, were supposed to go to create a TON network, a blockchain with a Gram token, related infrastructure and integration with the messenger. But no.
Investors, of course, could not understand sharding, hypercubic routing and the TON virtual machine, but they certainly knew how to twist their heads, compare and perform arithmetic operations at the level of primary school classes. This means that investors initially knew that the money was raised even with the most generous estimate of 20, or even 30 times more than is required to develop and launch the TON network itself.
Example: in 2017, the Cardano (ADA) project raised $ 63 million in initial public offering. This money was enough for the developers to create one of the most interesting in the world at that time technologically blockchain using the same consensus as TON (Proof of Stake).
We will proceed from common sense and assume that investors perfectly understood the real cost of the costs of the project of the Durov brothers, but readily gave money in excess. Obviously, they were counting on something else. For what?
Court Verdict – TON Prohibition
One of the versions is upheld by Judge Kevin Castel in his verdict of March 24, 2020. We read the ruling: “The court believes that the SEC is highly likely to prove that the agreement to sell 2.9 billion Gram tokens to 175 investors for $ 1.7 billion is part of the general scheme for the sale of Gram in the secondary market, which will be implemented by the efforts of the Telegram team … The court considers that this scheme is the sale of securities without mandatory registration”.
In other words, investors gave Telegram money in exchange for the right to receive Gram tokens in the future at a price significantly lower than the probable value of these tokens in the secondary market. According to the judge, investors were counting on quick money, because they could sell their tokens to a thirsty public in the first days of Gram’s listing.
If we agree with the judge, we will have to turn a blind eye to the fact that the direct fundraising of investors for the TON project did not happen at the peak of the stock bubble in December 2017, but in February 2018, after a total collapse of cryptocurrency exchange rates on exchanges (in January 2018).
Apparently, they were betting that a year would pass (this is the period originally set aside for launching the TON blockchain), passions will subside, the crowd will forget about their losses and joyfully trample the rams on a new haircut.
What investors expected
It can hardly be considered naïve idiots of people who invested almost two billion dollars in TON. It seems that TON investors have adequately assessed Gram’s chances of repeating the 2017 crypto bubble. Rather, it seems that they understood the lack of such chances.
It seems obvious that TON investors, if they themselves did not calculate it, then definitely consulted with experts about the real cost of developing a blockchain. Recall that this is a fairly well‐studied and, again, not the most revolutionary consensus algorithm.
We believe that investors were well aware that most of the $ 1.7 billion received would go not to the blockchain, but to the development of the Telegram messenger itself. Investors understood that the SEC, after digging into the ICO with a pit bull, would not ignore SAFT, which means that it will certainly try to prevent the issue of the Gram token. Investors understood everything, but they gave money anyway.
And would be glad but the SEC does not let
However, let’s go further and see how events developed. The only tangible result of the first year of Telegram’s work on the TON network was the failure of all the obligations specified in the agreement on the terms. More precisely, the alleged disruption, because no one saw the agreement in the eye, did not provide any reports on the work done by Telegram to the public, and the names of investors were kept in the strictest confidence.
Lyric digression about cryptocurrency Libra
In June 2019, a crucial event took place in the world of cryptocurrencies: Facebook introduced its own cryptocurrency Libra. Mark Zuckerberg, unlike the Durov brothers, for some unknown reasons decided to play openly, for which he immediately paid: the united state coalition of the United States and European Union rolled Libra into the asphalt without any trial.
While Mark, frightened to death, was making excuses for impudence before the Senate commission, the finance ministers of Germany and France explained to the naïve cryptocurrency on fingers: Libra will happen only through a corpse. Moreover, the corpse is not the Central Bank, but its own, libra’s.
Libra was destroyed
Zuckerberg’s crypto project put in jeopardy the entire prevailing financial system, the cornerstone of which is the state’s monopoly on the issue of money. Facebook with its two billion users posed a real threat to the power of the Central Banks, so Libra was destroyed quickly, decisively and without any trial.
After the destruction of Libra, it became clear that TON / Gram had no chance to survive.
How did Durov and Telegram behave
Telegram traditionally continued the game of silence, delaying the launch of the network until the deadline specified in the agreement with investors — October 30, 2019. However, the Securities and Exchange Commission was ahead of schedule: three weeks before the launch of the network, on October 11, 2019, it filed a lawsuit demanding to ban the issue of Gram and recognize the collection of funds from investors as illegal.
The crypto‐public was trying to put Pavel Durov in the pose of a suicide hero, urging him to ignore the presumptuous Americans who imagined themselves to be the world gendarme, but the carnival did not happen with popcorn.
Pavel Durov at the Techcrunch conference in 2018
Telegram announced its intention to uphold its case in court and postponed the launch of the TON network. Investors were offered to either immediately take away 77% of the investment, or wait until the end of the activity freeze (April 30, 2020). The figure 77% reflected reality (391 million dollars from the received 1.7 billion at that time Telegram had already managed to capitalize.).
The litigants did not doubt predetermination, however, the course of the trial left no doubt that time, or rather, its delay, also acts as a full‐fledged participant in the play along with Uncle Sam and the Durov brothers.
It all turned out that Judge Kevin Castel would reach the deadline with the announcement of the verdict, however, there was a coronavirus, the state’s priorities changed, and on March 24, the court confirmed the SEC ahead of schedule and forbade the issue of Gram.
Libertarian utopias of the crypto community
The public, continuing to hallucinate TON for revolutionism, offered Pavel Durov as many as four scenarios of further behavior, one crazier than the other:
1) Ignore the judge’s decision and launch TON, as if nothing had happened.
2) Return the money to American investors, do not return the rest to the rest and, again, launch the network.
3) Do nothing ourselves, and let the network be launched by a third‐party development team, for example, TON Community Foundation (TCF) or TON Labs.
4) Pay a fine and officially register a Gram emission in accordance with US law.
The proposed scenarios are utopian. The first three bring the Durov brothers personally under the monastery, even in the form of a comfortable American prison. The fourth ignores the main thing — the motive that guided the SEC in initiating a lawsuit against TON.
As expected, Pavel Durov dismissed all four scenarios„ following a good tradition, reached the grave silence until the last day and put forward a new proposal to investors on the night of April 30:
The launch of TON is delayed until April 30, 2021; Who does not want to wait, can take back 72% of the initial investment (in October 2019 they offered 77%: that is, another 85 were added to the 391 million spent); The rest will receive Gram tokens, if, of course, in a year it is possible to knock out an emission permit from SEC. Well, if you fail, then investors will receive 110% of their initial investment in the form of … equity in Telegram assets!
Why SEC destroyed TON
I have no doubt that SEC analysts had a wonderful understanding of the situation with TON investors and guessed their true interest, but neither TON, nor its investors, nor Telegram, nor Durov’s brothers were interested in Uncle Sam.
The SEC has only one important thing: to set a precedent that prevents any future attempts to use the SAFT loophole instead of ICO. Both agreements violate the rights of investors (both qualified and rich, that are unprepared and poor), because they do not provide any protection against the arbitrariness of dishonest home‐grown blockchain scholars.
Cryptorevolution after centralization
It’s time to get out of the diapers of romantic naivety and stop identifying any major blockchain project with cryptorevolution.
Telegram and its TON have nothing to do with the ideals of cryptorevolution. TON / Gram is a private business, and nothing more. By the way, judge Kevin Castel wrote about this in black and white in his verdict: “The SEC does not believe that bitcoins exchanged in the blockchain of the same name are securities. The information that gave rise to the lawsuit (that is, information about the Gram token — SG) gives us a completely different picture. ”
Translated from legal to everyday, this means that cryptorevolution is a public, decentralized and inclusive bitcoin blockchain. And TON / Gram is a commercial product of a private company trying to finance its own business by raising funds from investors in violation of the law.
What TON Investors Really Wanted
Finally, what was the initial bid made by TON / Gram investors? As we understand, they perfectly understood that the lion’s share of the funds raised will go not to the blockchain and its services, but to the Telegram messenger.
Investors understood this and it seemed to suit them. To put it mildly, smart investors in the coffin saw another shitcoin, even if performed by the Durov brothers.
From the very beginning, investors were not interested in TON / Gram, but in Telegram itself!
Because the messenger Durova is a real bomb. The bomb, which, only in 2019, has increased its customer base from 300 to 400 million users!
Telegram, however, is a private business, and Durov did not allow thoughts to share a share with someone. Hold on to the last. Until April 30th. Delayed as long as he could, but, in the end, circumstances forced. And — admitted.
In a letter to investors, Durov said that Telegram’s assets would be enough to cover all debt obligations, including $ 476 million already spent from 1.7 billion of the initial investment and the extra 10% promised to investors by April 30, 2021.
As a result, we suddenly had a full‐blown happy ending. The SEC set a precedent and protected potential investors in future crypto projects.
The public, I want to believe in it, was disappointed in the chimera of identifying private business with cryptorevolution.
TON / Gram investors got to the most desired – a chance to get a share in Telegram.
The Durov brothers received a year of respite, which can be used productively for something profitable and promising. For example, a forced translation of a messenger to an advertising model.