Pavel Durov, the founder and CEO of the social networking platform Telegram, had simply arrived in his personal jet at a small airport exterior of Paris, France, on Saturday when he was arrested by French officers and brought into custody. Durov’s detention reverberated the world over and led X proprietor Elon Musk and others to demand a response from French President Emmanuel Macron, who insisted the investigation was not political.
Particulars surrounding Durov’s detainment are nonetheless rising and, within the meantime, traders who’ve financed the corporate and salivated over a possible IPO are watching carefully. Many are probably anxious over the diploma to which Durov’s destiny will decide the way forward for Telegram, a platform that boasts practically a billion customers however can be tied to a $14 billion cryptocurrency, referred to as TON.
Telegram might seem just like different messaging platforms like WhatsApp at first look, however it’s completely different in key respects. That features its embrace of blockchain expertise, together with its shut integration with the cryptocurrency TON by means of video games, funds, and an advertiser community on its platform.
With Durov’s future up within the air, some traders try to distance the 2 entities.
“We wouldn’t name this in any respect an ‘existential’ disaster for Telegram,” the TON backer Kingsway Capital wrote in an investor letter Tuesday morning, in line with a duplicate reviewed by Fortune.
However whereas Durov has lately boasted of Telegram’s close to profitability, and even touted plans to take the corporate public, some traders and specialists who spoke with Fortune characterised the corporate as a “dictatorship” whose route, and prospects, had been tied to Durov—and its unstable crypto gambit.
A spokesperson for Telegram didn’t instantly reply to a request for remark.
Telegram has lengthy been a platform rife with contradictions. The Russian-born Durov had beforehand based VKontakte, his house nation’s largest social community, however balked on the authorities’s strict calls for. Although he nonetheless faces accusations of working with the Kremlin—which Telegram representatives have firmly denied—Durov based Telegram exterior of Russia to be a “impartial platform” and left his native nation.
In the meantime, Telegram’s lax strategy to moderation has made it a preferred discussion board for everybody from these on the lookout for unfiltered information on the conflict in Ukraine to U.S. right-wing ideologues. The platform can be awash with drug sellers and fraud chatrooms. Its userbase has now surpassed 900 million, Durov stated in March.
Whereas purportedly a privacy-focused app, Telegram nonetheless faces criticism from safety specialists for its lack of default end-to-end encryption. “We don’t believe in it being safe,” stated Natalia Krapiva, a senior tech counsel for the digital rights nonprofit Entry Now in an interview with Fortune.
Regardless of its huge progress, Telegram has lengthy struggled to monetize the platform. In keeping with Elies Campo, a former worker targeted on progress and enterprise improvement at Telegram from 2015 by means of 2021, Durov averted elevating cash by providing fairness in his firm to traders due to the dangerous style left in his mouth from VKontakte. “It’s developed organically primarily based on these experiences and the necessity for management,” Campo informed Fortune, including that workers weren’t even granted fairness.
These experiences embrace Telegram’s 2018 try to capitalize on the red-hot pattern of preliminary coin choices, or ICOs—the crypto world’s spin on preliminary public choices that noticed patrons obtain digital tokens as an alternative of shares.
Telegram’s ICO succeeded spectacularly, main the platform to boost $1.7 billion from traders after it introduced a pivot into crypto—a area that dovetailed with Durov’s professed beliefs of free speech and privateness.
However the U.S. Securities and Alternate Fee had different concepts. The company sued Telegram in 2019, alleging that the ICO constituted an unregistered securities providing, and ordered the corporate to halt its deliberate launch of a token and return greater than $1.2 billion to traders.
The episode would come to form Telegram’s monetary future, throwing Telegram into even additional turmoil after it was compelled to return the funds it hadn’t but spent. In keeping with the Wall Road Journal, Durov provided non-U.S. traders the flexibility to transform their refunds into one-year loans. However one U.S. investor, who spoke with Fortune on the situation of anonymity, stated they solely acquired a partial refund.
Within the wake of the aborted token launch, Telegram owed collectors a reported $700 million, with Durov saying on his personal platform that the corporate wanted “not less than just a few hundred million {dollars} per yr to maintain going.” Nonetheless, it didn’t provide fairness, as an alternative elevating funds by means of debt financing within the type of bonds, which included a sweetener of a ten% low cost to the itemizing worth, if Telegram ever went public. Telegram raised $1 billion by means of a bond providing, together with $150 million from Mubadala and Abu Dhabi Catalyst Companions—and, in an attention-grabbing twist given occasions at Durov’s final social community, Russia’s state funding fund— in early 2021. Telegram later raised capital in subsequent financing rounds of $210 million in 2023 and $330 million in 2024.
Previous to TON, traders by no means had a path to make a venture-like funding within the firm. However that will change.
After Telegram deserted its crypto plans, a bunch with deep roots in Telegram and VKontakte, together with former VK CEO Andrew Rogozov, continued to work on a blockchain, ultimately launching a brand new group referred to as the TON Basis that, not less than in authorized construction, was unbiased of the social media community.
The neighborhood builders labored to launch the blockchain with ostensible separation from Telegram, which transferred the rights to the crypto venture’s web site and GitHub account in 2021.
With the crypto world awash in also-ran blockchains that sought to problem Bitcoin and Ethereum, traders informed Fortune that TON was completely different due to its connections with Telegram. Even when Ethereum and Solana (one other fashionable blockchain) have higher tech, they don’t have mainstream customers. Telegram integrating TON, nonetheless, may imply the long-awaited killer app for crypto and kickstart adoption of the blockchain’s broader ecosystem. “TON is thrilling for principally causes of distribution,” stated Alex Felix, the chief funding officer at CoinFund, which invests within the token. “That was the massive distinction in what they had been bringing to market.”
On this sense, Telegram was poised to realize what Meta’s Mark Zuckerberg had sought to do in 2018 with an ill-fated venture often known as Libra, which promised to introduce a local cryptocurrency for customers all over the world. That venture floor to a halt underneath withering scrutiny from the U.S. Congress and different lawmakers.
After launching the general public model of its blockchain in Might 2021, TON would face accusations of centralization—a taboo in crypto—particularly given guidelines round governance and token distribution that some traders and analysts described as opaque. The crypto analysis agency White Rabbit discovered that 85.8% of the preliminary token provide was mined by just a few teams of miners related with one another and affiliated with the TON Basis. Campo informed Fortune that the connection between Telegram and TON remains to be unclear, together with how a lot of the token Telegram owns.
Durov would later announce his plans to restrict Telegram’s share of TON to round 10% of the provision, promoting surplus holdings to long-term traders underneath lockups, to assist a “decentralized ecosystem.”
One crypto VC, who spoke with Fortune on the situation of anonymity to debate their funding plans, stated they determined to cross on TON due to considerations round transparency and regulation. “It’s not simply accessible, and you may’t confirm all the data,” they stated.
That didn’t cease different traders. TON didn’t function a direct proxy for investing in Telegram, however it was the following neatest thing. And particularly as Telegram started to combine crypto into its platform, TON turned a sexy gamble for traders hoping to discover a blockchain software that was utilized by actual folks. After Telegram introduced an advert community with TON funds earlier this yr, the market cap exploded to over $25 billion, additional buoyed by the success of TON-powered minigames provided on Telegram just like the wildly fashionable Hamster Kombat.
“You possibly can consider Telegram as a large bootstrap for the TON ecosystem,” stated Yat Siu, the chairman of the crypto large Animoca Manufacturers, which additionally runs the most important validator on TON.
TON additionally represented one thing useful to Telegram. Its success meant that the renegade platform may implement funds with out the necessity to depend on fiat currencies—and extra importantly, it may doubtlessly strike gold on a income stream that will preclude the necessity to herald exterior traders. “I feel it will be very tough for Telegram to be a public firm and have TON fulfill [Durov’s] imaginative and prescient,” stated Felix. “I don’t know that they’re mutually unique, however it’s most likely choose one or the opposite.”
Matthew Graham, the founder and CEO of the VC agency Ryze Labs, stated that one of many causes he invested in TON was due to the issue Telegram would probably face attempting to go public. “We talked about that quite a bit internally,” he informed Fortune. “How reasonable is it that they might truly IPO, and to what extent would possibly they be fascinated by [TON] as the trail to monetize.”
When a CEO builds an organization round themselves and maintains tight management, there are distinct dangers. In keeping with Campo, the previous worker, Telegram solely has round 60 core workers—a staggeringly low quantity for a social media platform boasting practically one billion customers. “Every little thing goes by means of this man,” stated Graham. “It’s a dictatorship.”
The mud remains to be settling from Durov’s arrest, and it’s not even clear but which costs—if any—he’ll truly face. There was one proxy for evaluating the affect of his detention on Telegram: The value of TON dropped as a lot as 25% on Sunday, shedding $3 billion.
Buyers are nonetheless grappling with the fallout. “The historical past of blockchains comparable to Bitcoin, Ethereum or TON has lengthy been accompanied by bans and threats of bans, which hasn’t stopped the trade,” Kingsway Capital wrote within the investor letter. “TON may even function fully unbiased of Telegram.”
Nonetheless, whereas the long run promise of TON could be an ecosystem that thrives exterior of Telegram, it’s nonetheless—not less than for now—depending on Telegram. Relying on the costs, Durov could possibly be compelled to implement extra moderation and know-your-customer provisions inside Telegram—an costly proposition that might spell the top of its crypto experiment.
Campo stated that in his time at Telegram, Durov by no means carried out a succession plan. “No one actually is aware of easy methods to resolve [moderation] at scale,” he stated. “Telegram should change and transcend this 60-person group of hackers.”
