Messaging system Telegram is the favoured chat app for ICOs― every ICO seems to have a Telegram chat room. As founder Pavel Durov told Bloomberg in early December 2017, “the entire blockchain and cryptocurrency community just switched to Telegram.”
Telegram doesn’t have a business model ― it’s funded out of Durov’s pocket, using the $300 million he got for his previous huge success, VKontakte, the Russian answer to Facebook.
So, Telegram needed money from somewhere. So in early 2018, it did its own sort-of-ICO.
The not-an-ICO nets $1.7 billion
Telegram started touting an ICO to private investors some time in late 2017. Former employee Anton Rozenberg posted to Facebook ( archive ) on 21 December 2017, publicly confirming the ICO’s existence ― and linking the teaser video.
The video posits a fabulously scaleable blockchain, solving most present blockchain scaling problems― and every Telegram user will get a TON wallet, to store the network’s token, the Gram, “making it the world’s most adopted cryptocurrency.”
The ICO was a SAFT ― a Simple Agreement for Future Tokens― for Gram tokens. The Grams would be delivered when TON was up and running.
The offering was exempt from registration as a security under Regulation D 506(c) ― for “accredited,” i.e., rich, investors only. If an accredited investor wants to buy nonexistent future magic beans, that’s entirely their own lookout.
Telegram’s a famous name, so Silicon Valley venture capital wanted in on this one ― exposure to cryptocurrency at the peak of the hype, a famous name with lots of users, and founders who had a track record of success!
The SAFTs were sold in two rounds, of $850 million each ― and that’s in actual US dollars, not cryptos. The first round was oversubscribed, and buyers were reportedly reselling their SAFTs for twice what they’d paid, before the round even finished.
(It’s not clear how the investors did this, or precisely what they were reselling ― under SEC Rule 144, you mostly can’t trade 506(c) securities for at least six months after first sale. And the text of the SAFT hasn’t leaked, so it’s not clear if Telegram has any obligation other than to the original purchasers.)
What did these investors get for their $1.7 billion? Not a stake in the company ― just the right to Gram tokens, when the TON blockchain eventually launched.
Raising $1.7 billion without giving up any stake in your company is an idea with obvious attractions. For comparison, that’s one-tenth of what Facebook’s initial public offering raised ― in one of the longest-awaited, most closely-watched Silicon Valley IPOs ever. And Facebook’s user base is a significant percentage of all the people in the world … unlike Telegram’s niche messaging app.
The TON “primer” white paper ( archive ) says the ICO funds will be used for “the development of Telegram and TON and for the ongoing expenses required to support the growth of the ecosystem.” That is, they can use the money to pay Telegram’s regular bills ― and also, develop some blockchainy thing.
Though if TON doesn’t launch by October 2019 ― Telegram will return the investors’ money! … if there’s any left by then.No public ICO, but …
The ICO never went to its planned public round ― the SEC was sniffing around ICOs, and Telegram had already made much more money than they’d expected, all of it from people who were definitely rich enough to know better.
But creative cryptocurrency entrepreneurs had been on the case since January ― setting up fake Telegram ICO sites, such as tgram.cc, ton-ico.com, ton-gram.io, grampreico.com, tgram.cc and gramtoken.tech. One site, gramtoken.io, collected $5 million in Ether before disappearing.
Some of these, I can’t even work out precisely what the scam is. ico-telegram.org ( archive ) claims to be running a refund. “We point out that we are DO NOT sell/provide any type of security/currency/worldly goods or investment promises. we are DO NOT sell Gram token or Telegram token.” If you click the “Refund” button, you go to another page ( archive ) which says “We are ready to work together with the authorities and law enforcement agencies to resolve the situation and issue any and all refunds corectly.” If you have MetaMask installed, it blocks the site with a scam warning.
A sham company was incorporated in the UK, Telegram Open Network Limited, falsely claiming to be owned by Pavel Durov, with 800 million in capital. Telegram disclaimed it.Telegram also defended the name “Gram” ( archive ) against another company, Lantah LLC, that planned its own “GRAM” token. Lantah LLC appears to have actually been first ― but Telegram convinced the judge that they “