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American Telegram Investors Told to Liquidate Token Holdings

Instead of holding tokens in the firm's controversial blockchain network, Telegram investors have now been given the opportunity to exchange tokens for equity in the company.

American Telegram Investors Told to Liquidate Token Holdings

Key Takeaways

  • Telegram initially offered investors 72% of their capital back if they wished to liquidate their stake in its blockchain project.
  • A new offer now gives investors the option to lend their invested capital to Telegram for a year in exchange for Telegram equity shares.
  • This is a last-ditch effort from the company to buy time and save the Telegram Open Network.

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The SEC has stopped Telegram’s token issuance, forcing the company to delay its launch. But by offering existing global investors a compelling deal, the company has now bought itself time to remedy the problem. The same, however, is not true for investors based in the United States

Investors Weigh Cash, Equity, and Crypto

After failing to meet it’s revised launch date of Apr. 30, 2020, Telegram’s negotiations with its token investors have taken an unusual turn.

If investors were to treat their invested capital in the Telegram Open Network (TON) as a loan to the firm, they would be given their entire investment back along with an extra 10% return, reports Coindesk

The returns would allegedly be dolled out in April 2021. Critically, the return investment would be in equity shares rather than cash.

Gabriel Shapiro, an attorney focused on the crypto space, told Crypto Briefing: 

“I believe this may be a great outcome for the Telegram SAFT investors. They thought they were buying a token that would be directly integrated into the Telegram app and whose value would likely rise with Telegram’s network effects.”

Although Telegram launched a successful $1.7 billion token sale in 2018, it has never been possible to own traditional equity in the communications giant. 

The tabled option may prevent investors from liquidating their stakes immediately, buying the firm time to find a long-term solution without returning the money it raised. Shapiro added: 

“Now, if [investors] take the new deal on the table, they can be among the first venture investors in Telegram’s equity, which is likely a far better investment than tokens.”

If TON investors decide to liquidate their token investment in Telegram, they can walk away with 72% of their investment. The company and investors mutually agreed on this figure when the issuance of tokens was first postponed in January 2020. 

Investors are now left to choose one of two options: sell their stake for 72% immediately or lend it out for a year and receive 110% of their capital in the form of Telegram shares. 

For that 110% return, though, investors are also betting that the company will raise a fresh round of investments next year. Only then would they have the opportunity to sell their equity holdings.

Those bullish on the company’s prospects will take the deal, while the rest of the investors will walk away with 72% of their capital in cash.

A month prior, a New York district court slammed the communications giant with an order to halt the disbursement of tokens. Telegram’s token raise was deemed an unregistered security offering by the SEC, and many of those who invested in the project live in the United States.

If the company is unable to reach an understanding with U.S. authorities one year from now, investors will, at the very least, own equity of the fifth largest messaging app.

Editor’s note: This article has been updated to reflect the most recent developments on May 5, 2020. 

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