Telegram Cancels Public ICO - Report

The messaging application raises USD 1.7 billion from two private ICO rounds.

by Marin Marinov
03 May • 4 min
In News

Encrypted messaging application Telegram has scrapped its public Initial Coin Offering (ICO) after raising USD 1.7 billion from two private rounds, the Wall Street Journal (WSJ) reported on Wednesday. The decision comes amid US regulatory activity regarding ICOs and tokens.

Telegram planned the ICO to fund its “third-generation blockchain”, called Telegram Open Network (TON). Pavel Durov`s company raised USD 850 000 from each of the two pre-sale rounds between January and March. The capital is enough for the moment, WSJ reported quoting unnamed sources.

Telegram Open Network

Telegram Open Network is a blockchain-based system that claims to ensure secure and encrypted payments.  Telegram coins, Gram, should be used “for all digital and physical assets sold by individual merchants within the Telegram ecosystem and on other projects integrated with TON”, according to the project`s white paper.

Telegram`s ICO is part of Durov`s efforts to end Facebook dominance in the messaging service applications and to attract more investments. WhatsApp and Facebook Messenger, both owned by Zuckerberg`s company, have passed 1.3 billion monthly active users (MAUs) each in 2017. Telegram had 200 million MAUs as at March this year.

one man in a dark suit
Pavel Durov, Telegram`s founder/Image`s source: wikipedia.org under CC BY-SA 4.0

Telegram, launched in 2013, has not revealed any information about its revenue. Durov reportedly keeps the Telegram running with own funds, according to Russian newspaper The Moscow Times.

Dubbed “Russia`s Mark Zuckerberg,” Pavel Durov created the most popular Russian social network Vkontakte (VK) more than a decade ago. He lives in a self-imposed exile since 2014 after losing both his position as CEO of VK and control of the network. He launched Telegram outside Russia and chose ICO as a funding method, which would allow him to retain control of Telegram.

Telegram and US regulators

Telegram`s fillings to the US Securities and Exchange Commission (SEC) show that the company has attracted 81 investors in the first funding round and 95 – in the second. The founders of the Russian payment service QIWI, Sergei Solonin and David Yakobashvili, were among the investors:

“I want Telegram to be a Russian company,” Sergey Solonin, CEO of QIWI explained during a Sochi economic forum in February.

Telegram Group Inc., the owner of the messaging app, and TON Issuer Inc., the company that issues the Grams, are both registered in the British Virgin Islands. The company still needs to comply with SEC regulations as it will be a subject of scrutiny if US citizens invest in the ICO.

Telegram move comes amid growing debates between US regulators and lawmakers about the exact definition of crypto assets: securities or commodities. This distinction should make it clear which authority will regulate them. The US Commodity Futures Trading Commission (CFTC) is responsible for futures and options markets, while the Securities and Exchange Commission (SEC) enforces securities laws.

one white paper plane on a blue background
Telegram`s logo.

 

Another topic for discussion is the distinction between cryptocurrencies and ICO tokens. Last week, former CFTC Chairman Gary Gensler said that Ripple (XRP) and Ethereum (ETH) are securities unlike Bitcoin (BTC). Under US legislation, if assets (e.g. Gram tokens) draw profit expectations based on a third party activity (e.g. Telegram business), they should be regulated as securities.

SEC sees the ICOs and ICO tokens as securities that should be regulated under existing laws:

"I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story,” Jay Clayton, the Chairman of SEC said during a Senate hearing in February.