As Telegram’s Toncoin Usage Grows, Failed Gram Investors Seeing Red

A few years ago, messaging app Telegram announced it was creating a blockchain called the Telegram Open Network (TON). It would have its own coin called Gram. You were going to be able buy and sell things on Telegram using Gram. It would be as exciting as buying and selling things on Facebook with Libra, if that was a thing. It’s not. The U.S. Securities and Exchange Commission said it could rival the dollar in commerce and the Federal Reserve, no fan of cryptocurrencies except their own central bank digital dollar, put the kibosh on Facebook’s digital currency wing, known as the Diem Association.

Things fall apart.

Not so for Telegram, it seems. Telegram has what Facebook wanted.

After the SEC killed Gram, Toncoin took its place as a new option, an alternative to Gram, which was more like an investment in Telegram itself. Toncoin is different, and is not an investment in Telegram. The two are separate legal entities according to Telegram press office – a fact challenged by many Gram investors. But Toncoin, like Gram before it, is the native cryptocurrency of the messaging app Telegram.

In January 2022, there were around 200 thousand active wallets holding Toncoins. As of the end of May, that number is approaching 600 thousand.

The TON Blockchain is one of the most profitable tech projects ever created by Russian-backed capital and brain power. Pavel Durov is the star of the show, being hailed as a saint for staring down the Russian intelligence apparatus known by its acronym FSB before going into self-exile.

Durov came up with the idea – though perhaps not on his own — to do an initial coin offering in 2018 to create Telegram’s own digital commerce platform on the messaging app, one of the world’s largest after WhatsApp and WeChat.

Telegram raised $1.7 billion from 171 investors, including Russian billionaires Roman Abramovich and Yuri Milner; Qiwi founder Sergei Solonin; Russian businessman Said Gutseriev; European dairy giant Wimm-Bill-Dann’s co-founder David Yakobashvili and others, to develop the project – essentially a Telegram run e-commerce ecosystem powered by Gram coins as the currency of choice.

Gram was blocked by the SEC, and Telegram had to return money to investors.

On June 26, 2020, the court approved a settlement agreement between the SEC and Telegram Group Inc. and its subsidiary, TON Issuer Inc. to settle allegations that Telegram’s unregistered digital token (Gram) violated U.S. federal securities laws. The defendants agreed to return $1.2 billion to investors and pay an $18.5 million fine.

Telegram offered to refund investors into the Telegram Open Network in 2018 either by receiving 72% of their investment immediately or loan it to Telegram for a year, then be paid in cash, Gram or another crypto, with an additional 10% bonus.

Around 70% of that was returned. The rest was not. Institutional investors lost their capital including Russian investors Zotobi Management Limited (Igor Chuprin) – $280,000 loss — and Da Vinci Capital – a $20 million loss, based on reporting by Forbes Russia.

For U.S. investors, they had to take the 72% refund and exit the Gram token project, while non-U.S. investors had opportunity to receive 110% of invested sum. This seems to be a Telegram decision, not an SEC one. and

From where these investors sit, the Gram project has morphed into the TON (now abbreviated as “The Open Network”) project, and they are wondering why they could not have just been paid from those proceeds instead of being forced to lock in a loss. Toncoin‘s fully diluted market cap is around $5 billion, though this capital was raised by individual crypto investors, including retail investors.

According to some Telegram investors who wished to remain anonymous due to an ongoing legal fight with the company, the main architecture of the TON Network was created with money that was collected from investors in Gram. Investors who are now suing Telegram say that they ultimately financed the Toncoin but received no return on that investment. This is the crux of the story.

“The developers of the Toncoin have risks of receiving claims from former investors of the Telegram blockchain platform,” says Slava Semenchuk, a well-known Russian venture capitalist and cryptocurrency project investor told Forbes Russia. “Investors did not receive all their money back. Nothing has changed in TON, not even the code,” he was quoted as saying.

But the TON Network is a separate legal entity, Telegram’s press office said. TON is unrelated, as Durov has said on his social media. Even the word “Telegram” has been removed. Some investors find that suspicous.

On May 12, 2020, Durov announced the termination of the TON project. On December 23, 2021, he only expressed his support for Toncoin on his English-language channel on the messaging app.

Toncoin was always intended for the general public, while Gram was only for a certain circle of accredited investors.

Still, Toncoin is an investment as much as any cryptocurrency is.

In Russia, well-known rapper Morgenshtern announced in January that he was buying Toncoin. Like Elon Musk announcing he was buying Dogecoin, the price of Toncoin rose by 20% after the rapper touted his crypto trade. Around the same time, Morgenstern opened a news channel in Telegram, which was actively advertised in the messaging app and amassed an audience of 1.3 million in a few weeks, an ode to Telegram’s popularity and Toncoin as an investment for retail crypto bros.

“At some point, the Telegram community announced that the TON Network was no longer a test network, but was a working one, and renamed the test Grams to Toncoin,” Forbes Russia reported last year.

Those who were not made whole from the canceled ICO, are suing to get paid from the TON Network, a network they claim they invested in in the first place.

“These investors did not get the opportunity to exchange Grams for Toncoins,” said one representative from the investor group who wished to be anonymous. “Such transactions of Gram for Toncoin, and not merely at a project testing level, would attract the attention of the SEC and put an end to on the whole Gram scam if Gram is now Toncoin.”

Out of five billion Toncoins, 4.9 billion, or 99% of the volume of all coins, is concentrated in the hands of an unknown group of whales. Most of the coins are held in about 100 wallets of unknown whales, a common investor euphemism to describe major shareholders.

Telegram announced the official launch of crypto payments on the messaging app in May, and the only cryptocurrency for transacting on the app is Toncoin, despite being different coins. It seems clear that the TON Network and Telegram have some managerial and investor connections, if not legal ties.

Plans to make Toncoin the official Telegram coin were announced shortly after the TON Foundation brought on former Durov colleague Andrew Rogozov, a pal from back in the VKontakte days – Russia’s biggest social media platform.

“Facebook was unable to launch its Libra currency, but Pavel and Telegram succeeded,” said one of the people involved in the suit who did not want to be named for the record. “It turned out that all that was needed was to rename Gram to Toncoin and make a few statements that Telegram had nothing to do with it. But the facts say otherwise – no other cryptocurrency has received the opportunity to integrate into Telegram like Toncoin.”

Telegram did not confirm nor deny that some investors were not made whole. They said the company “fully carried out its contractual obligations under the Purchase Agreements with all its investors in 2020. In addition, many investors enjoyed our goodwill offer to receive 110% of their initial investment in 2021. All of the world-famous TON investors we spoke with understood the nature of the roadblock we faced and were appreciative of the way we handled it.”

Did Telegram violate its settlement agreement with the SEC? That settlement requires Telegram to return funds to investors, imposed a significant penalty, and requires Telegram to give notice of future digital offerings. Toncoin fits the bill. That’s what the aggrieved investors are saying in going after one of the world’s most popular tech founders, and arguably the go-to alternative to WhatsApp. This comes at a time when crypto is taking a beating, and testing investor patience.

Telegram does face the legal risks of re-prosecution by the SEC with even more serious legal consequences for both Telegram and its investors. It also puts retail Toncoin holders at risk because new claims from the SEC will trigger a sales wave that will push the token price deeper into the avalanche all cryptos find themselves blanketed in at the moment.