TON: The best uninvestable token in crypto

Today’s newsletter was going to be straightforward.

TON is a layer-1 chain, around the 10th largest by market cap. The tech is solid. There are lots of developers. Good developers. There are users. So many users. It’s integrated natively into Telegram, one of the largest messaging/social apps in the world. 

It has a real chance of becoming the first layer-1 crypto network to break through and become a true platform beyond esoteric financial use cases. Gaming. P2P exchange. DeFi. Social. It checks every box.

Your mom could use TON one day. She may already. It had (has?) that much potential.

And then Pavel Durov, founder of Telegram and TON, deca-billionaire, and thorn in the side of government’s everywhere was arrested by French police on Saturday when his private jet landed outside Paris. He’s been charged with a litany of offenses, mostly for being “complicit” in every sort of the worst crimes imaginable. 

So, instead of the first draft of this post I wrote last week, where I conclude by putting my whole net worth into TON and gloriously riding this bet to Valhalla, we now have this. Confusion. Ambiguity. Pain. Now it’s political. Maybe criminal. And, at least for now, not investable.

The question is no longer about TON the network or TONCOIN the token, it’s about how these political and legal risks affect our thesis, and what that means to the portfolio allocation.

But first, some good reads

I’m trying out a tweak to the format this week. Let me know what you think. I plan to link to a handful of notable, relevant, or interesting news items, analyses, or other content each week. Just 3-5 links.

1. Crypto: Pantera Capital on its decision to invest in TON (published May 8, 2024)

2. Crypto: If you have Telegram, give Hamster Kombat a try. It’s a game built on TON inside Telegram. Tap the Hamster to play.

3. History: Book review of How the War Was Won by Phillips Payson O’Brien. Fascinating discussion from the Astral Codex Ten community of the book’s central claim — that WW2 was determined by the West’s air superiority and ability to limit/disrupt German production, not the overwhelming Russian grind on the Eastern Front.

4. Random: The Idiocy of the Average

Telegram and TON

First, let’s talk about why I was so excited to invest in TON. This is the TL;DR of what this week’s newsletter was supposed to be.

Massive User Base Potential:

Integrated with Telegram's 900M+ monthly active users. Seamless bridge between messaging, social, and blockchain products/features.

Rapid Ecosystem Growth:

TVL surged from $13.51M to $725M+ in mid-2024. Success stories like Hamster Kombat game (300M+ players)

Unique Features:

Tokenized usernames ($350M+ in sales). Revenue sharing model for content creators. Native USDT integration.

Strong Whale Support:

$342M worth of TON purchased by whales in a single week earlier this year. Indicates high confidence from large investors. TON is the largest investment ever made by Pantera Capital, a large and noteworthy investor. (see link in Good Reads)

Impressive On-Chain Metrics:

All-time high of 605,900 daily active users. 225% increase in derivatives volume.

Market Performance:

Price growth from $2 to $8.17 (early to mid-2024). Touched $25 billion market cap back in April. Still north of $13.7B as I write this. About half of the tokens are unlocked. Fully diluted market cap is just under $30 billion at the moment.

Key Differentiator:

Better distribution, better user experience.  Unique blend of established messaging platform integration and innovative blockchain tech. 

Alors…Bonjour de la France

TON was going to be a slam dunk. Crypto rails with some actual distribution.  Throw in some crypto ideals to get the juicing flowing – freedom to transact! 

And then the founder had to land his jet in France. 

Note to self: don’t land the jet in France.

Does this mean that TON and Telegram are really just for criminals? Is Pavel some kind of Bond-esque super villain? 

Or maybe the French are just being French, and this is more collectivist overreach by Macron even after la dissolution parlementaire earlier this summer? 

It’s impossible to say. Twitter has been a maelstrom of propaganda and hot takes around this subject all weekend – from spy vs spy conspiracies (is Pavel a Russian agent? Maybe? Is Mossad the puppet master trying to take down Hamas groups on TG? I guess?  How would twitter know any of this?), to technical deep dives on why Telegram’s cryptography isn’t what they claim it to be, to calling for the return of Freedom Fries.  

We don’t know what the French have in evidence. Pavel Durov has bumped up against governments before – he was run out of his native Russia in 2014 because he refused to allow the Putin government to censor or sufficiently moderate his first startup, the social media platform VK. On the surface, this weekend’s arrest sounds pretty similar, except with a French accent. 

I believe encryption is worth fighting for – our digital lives are a clear attack vector for the tyrannical. Encryption is one of the few tools available to protect the individual from authoritarianism.

But I’ve also been around the block enough to know that sometimes crooks will use the most noble of principles as cover for their crimes.

Who knows. Maybe he is a crook. Maybe that matters. Maybe it doesn’t. 

I also recognize that we’re not here, reading a crypto newsletter, as political revolutionaries. We’re here to make money.

Is TON investable at this point?

So where does that leave my TON bags?

The price dropped a good bit, about 15% on the news of the arrest, then dropped another ~8% when the French released the official charges against Durov.

TON still has a $13+ billion market cap. Not small potatoes. The blockchain itself continues rolling forward, block by block, as though nothing happened. Theoretically the chain is decentralized and censorship resistant, so we should expect this resiliency to continue (at least operationally).

The big risk is longer term. Losing a visionary leader can be crushing for any enterprise, decentralized blockchains included. The entire Telegram team is less than 100 people. Is there a leader who can step up and keep the platform competitive? What will this reputational hit do to user growth?

If you were a crypto developer, is the distribution advantage of Telegram worth the political/legal/reputational risk after this weekend?

Maybe you’ll now head over to Base to build with the Coinbase community? Or perhaps the degens over on Solana?

No exec’s at Coinbase or the Solana Foundation are currently sitting in a French jail cell. Hard to argue against that.

The TONCOIN price action has been pretty ugly since the arrest too. The price is well below moving averages, momentum is dead, and my gut is that any further news will be down only.

The French police aren’t going to just back down after all this. Positive news for Durov just means the French are attacking encryption and censorship resistance — that’s bad for crypto. Negative news for Durov means he may actually be complicit, a spy, and/or a true criminal — that’s also bad for the token. It’s lose-lose for the time being.

Therefore, I’ve decided to update my forecast on TON, avoid any allocation for now, and hold that capital in cash.

In liquid crypto markets (ie. what we do here, buying listed coins on the open market), it rarely pays to bet against a trend. TON’s advantages will still be there once the dust settles. Until that risk abates, I’ll be on the sideline.

Portfolio Updates

I completed all the trades outlined in last week’s newsletter with the exception of TON. I am staying on the sidelines for now for the reasons above. Crypto has all the volatility and risk that I need – adding TONCOIN to my portfolio now just adds more risk without any clear upside to justify it. 

Market Vibes