The Telegram Open Network under pressure from the Securities Exchange Commission for allegedly conducting an unregistered security sale, with a court hearing scheduled for 2020. But even if TON successfully defends its case there are other issues that may worry potential investors.
TON is reaching for ambitious technological goals. However, rolling out all of the features described in the 500 pages of its multiple whitepapers may take longer than anticipated. The platform remains raw as many parts of its technological stack are still under development. Furthermore, a decision to “roll its own crypto” does little to instill confidence in a timely delivery.
In this regard, the SEC’s move to stop TON from issuing its tokens was considered as a positive factor by some investors. This should give the project more time to develop something more than just a minimum viable product and potentially improve public sentiment for the mainnet launch — assuming the project settles its case with the SEC.
Regardless of the ultimate verdict of TON’s dispute, it will draw a significant amount of resources that could have been used for the development of the platform. This is especially important as the network’s already incurring large expenses. According to the SEC’s filing, “as of January 31, 2019 TON had used approximately $218M of the $1.7B raised to support the development of Messenger and the TON Blockchain”.
Telegram’s own estimates imply expenses of approximately $520 million between 2019 and 2021 on Messenger alone. Such disproportionate spending raises questions on its usage of funds since the platform is still far from being fully completed.
Dangerously High Valuation
Telegram is planning to have an initial supply of 5 billion GRAMs. A vesting period will result in a staggered release to investors in multiple tranches: 3, 6, 12 and 18 months after the launch. On top of that, the project is aiming for yearly supply inflation of two percent.
Not all investors purchased the tokens at the same price: round one buyers paid $0.37 for each GRAM while round two investors paid $1.33 per GRAM.
However, some of them were able to sell these tokens on secondary markets. Telegram publicly prohibited investors from reselling their allocation under the penalty of terminating the purchase contract. Buyers and sellers circumvented this by signing delayed delivery contracts, which are only fulfilled after the launch of the network.
Over-the-counter deals for GRAM tokens valued them between $1.6 and $4. In June this year, Japan-based crypto exchange Liquid sold a limited number of tokens at a price of four dollars. Based on these figures, the total valuation of the TON network lies somewhere between $1.8 billion and $20 billion.
Should the token be listed for trading, however, the lower valuation bound seems more likely. Initial investors appear to be eager to sell, which combined with negative sentiment and high cost basis for some investors could result in panic selling.
The bearish outlook of the overall market is likely to worsen the situation. At four dollars, the project would be approximately as valuable as Ethereum, a scenario that is difficult to envision for a newcomer.
Although some people consider TON to be the next big thing in crypto, investors should exercise caution — the initial selling pressure is likely to vastly outstrip demand.