Telegram’s founder and CEO, Pavel Durov, was detained by French authorities on Saturday after being picked up in his private jet at a small airport outside of Paris. The news of Durov’s incarceration spread around the globe, prompting X owner Elon Musk and others to call for a response from French President Emmanuel Macron, who maintained that the probe was non-political.
Investors who have funded the company and are drooling over a possible IPO are keeping a careful eye on developments about Durov’s detention. Details around his detention are still coming to light. Many people are probably worried about how Durov’s actions will affect Telegram’s future. Telegram is a messaging app with around a billion users and is connected to the $14 billion cryptocurrency TON.
The everything app
Although at first look Telegram may seem comparable to other messaging services like WhatsApp, it differs in some significant ways. This covers its adoption of blockchain technology and its tight connection with the cryptocurrency TON via its platform’s games, payments, and advertisement network.
Some investors are attempting to put some distance between the two organizations because Durov’s future is uncertain.
According to a copy seen by Fortune, the TON backer Kingsway Capital stated in an investor letter on Tuesday morning, “We wouldn’t call this at all a ‘existential’ crisis for Telegram.”
However, despite Durov’s recent boasts about Telegram’s almost profitable status and intentions to go public, a number of investors and industry insiders described the business as a “dictatorship” whose future was dependent on Durov—and its unstable cryptocurrency strategy.
An inquiry for comment from a Telegram representative was not immediately answered.
For a long time, Telegram has been a contradictory platform. The largest social network in his native Russia, VKontakte, was formed by Durov, a Russian by birth, but he refused to comply with the tight regulations of the authorities. Telegram staff have adamantly refuted allegations that Durov worked with the Kremlin, despite the fact that he fled his home country and launched Telegram outside of Russia as a “neutral platform.”
Meanwhile, Telegram has become a well-liked platform for a wide range of users, including right-wing ideologues in the US and those seeking uncensored news on the conflict in Ukraine, due to its weak moderation policies. There are a ton of scam chatrooms and drug traffickers on the network. In March, Durov stated that the platform’s user base had topped 900 million.
Despite being marketed as a privacy-focused software, security experts continue to criticize Telegram for not having end-to-end encryption by default. In an interview, Natalia Krapiva, a senior tech counsel with the digital rights organization Access Now, stated, “We don’t have confidence in it being secure.”
Look for a business plan
Telegram has had a difficult time making money off of the network despite its rapid expansion. Elies Campo, a former Telegram employee who worked on growth and business development from 2015 to 2021, claims that Durov refrained from acquiring capital by giving investors stock in his company because of the negative impression that VKontakte left on him. Campo told, “It’s evolved organically based on these experiences and the need for control,” noting that workers did not even receive shares.
Among those experiences was Telegram’s 2018 endeavor to cash in on the explosive trend of initial coin offerings, or ICOs—the cryptocurrency world’s version of initial public offerings, in which purchasers received digital tokens rather than shares.
Following the announcement of a move into cryptocurrency—a space that aligned with Durov’s stated values of free expression and privacy—Telegram’s initial coin offering (ICO) was a huge success, helping the platform raise $1.7 billion from investors.
The Securities and Exchange Commission of the United States, however, had other ideas. The government filed a lawsuit against Telegram in 2019, claiming that the initial coin offering (ICO) was an unregistered securities offering. The business was also directed to stop preparing to launch a token and reimburse investors for more than $1.2 billion.
The incident would have a lasting impact on Telegram’s finances since it had the company return money that it hadn’t yet used, which caused even more chaos. The Wall Street Journal claims that Durov gave foreign investors the option to turn their returns into one-year loans. However, an American investor claimed to have only gotten a portion of their money back.
Telegram reportedly owed creditors $700 million following the canceled token launch, and Durov stated on his own platform that the business need “at least a few hundred million dollars per year to keep going.” However, it refrained from offering shares in favor of debt funding through bonds, which came with a 10% listing price reduction if Telegram ever went public as a bonus. Through a bond issue, Telegram raised $1 billion, with $150 million coming from Mubadala and Abu Dhabi Catalyst Partners. In an intriguing turn of events following the demise of Durov’s previous social network, the state investment fund of Russia also contributed to the fundraising in early 2021. Later, in funding rounds of $210 million in 2023 and $330 million in 2024, Telegram raised additional funds.
Investors had no way to fund a venture-like investment in the company before TON. However, that would alter.
Crypto 2.0
Following Telegram’s abandonment of its cryptocurrency plans, a group with strong ties to both Telegram and VKontakte—among them former CEO of VK Andrew Rogozov—kept working on a blockchain and eventually established the TON Foundation, a new organization that was, at least in terms of its legal structure, independent of the social media network.
The rights to the cryptocurrency project’s website and GitHub account were passed to the community developers, who planned to launch the blockchain with an apparent separation from Telegram in 2021.
With the crypto industry saturated in also-ran blockchains attempting to compete with Bitcoin and Ethereum, investors told Fortune that TON stood out due to its ties to Telegram. Even if Ethereum and Solana (another famous blockchain) have greater technology, they do not have widespread adoption. Telegram’s integration of TON, on the other hand, might result in the long-awaited killer app for cryptocurrency and accelerate adoption of the blockchain’s broader ecosystem. “TON is exciting for mostly reasons of distribution,” said Alex Felix, the chief investment officer of CoinFund, which invests in the currency. “That was the big difference in what they were bringing to market.”
In this way, Telegram was ready to do what Meta’s Mark Zuckerberg had hoped to accomplish in 2018 with the ill-fated Libra project, which promised to create a local cryptocurrency for users worldwide. That project came to a halt after intense examination from the United States Congress and other lawmakers.
After unveiling the public version of its blockchain in May 2021, TON will face charges of centralization—a crypto no-no—especially given opaque rules for governance and token distribution, according to some investors and analysts. The crypto research firm White Rabbit discovered that 85.8% of the original token supply was mined by a small groups of miners who were related to one another and involved with the TON Foundation. Campo told that the relationship between Telegram and TON remains unclear, particularly how much of the token Telegram owns.
Later, Durov would declare his intentions to support a “decentralized ecosystem” by restricting Telegram’s ownership of TON to about 10% of the total supply and selling excess holdings to long-term investors under lockups.
One crypto venture capitalist, who discussed their investment plans under the condition of anonymity, stated that they passed on TON due to worries about regulation and transparency. They claimed, “You can’t verify all the information, and it’s not easily accessible.”
Other investors weren’t deterred by that. The next best thing was TON, but it wasn’t a direct substitute for investing in Telegram. TON also became a tempting bet for investors looking to discover a blockchain program that was actually being used, especially as Telegram started incorporating cryptocurrency into its platform. The popularity of TON-powered minigames like Hamster Kombat on Telegram helped to propel the company’s market capitalization to over $25 billion when it revealed earlier this year that it would be launching an ad network with TON payments.
Chairman of the enormous cryptocurrency company Animoca Brands, which also operates the biggest validator on TON, Yat Siu, said, “You can think of Telegram as a massive bootstrap for the TON ecosystem.”
Additionally, Telegram valued what TON stood for. As a result of its success, the rebellious platform was able to establish payment methods independent of fiat money, and more significantly, it might generate enough revenue to avoid the need to recruit outside investors. “I believe that TON’s fulfillment of [Durov’s] vision would be extremely challenging for Telegram to be a publicly traded company,” Felix stated. “Select one or the other, I’m not sure if they are mutually exclusive.”
The problem Telegram would probably encounter in trying to go public was one of the reasons Matthew Graham, the founder and CEO of the venture capital firm Ryze Labs, stated why he invested in TON. He said to Fortune, “We discussed that a lot internally.” “To what extent might they be considering [TON] as a path to monetize, and how realistic is it that they would actually go public?”
The destiny of Telegram and Durov
There are clear hazards involved when a CEO creates a firm around them and exercises strict control. The former worker, Campo, claims that Telegram only has about 60 key staff, which is a startlingly low amount for a social media company with about one billion users. Graham said, “Everything passes through this guy.” It’s a despotic rule.
Durov’s arrest has left a trail of destruction, and it’s still unclear what crimes, if any, he will ultimately be charged with. To assess the effect of his incarceration on Telegram, there was only one stand-in: On Sunday, TON’s price fell by up as 25%, costing $3 billion in losses.
Investors are still attempting to manage the consequences. In the investor letter, Kingsway Capital stated, “The history of blockchains like Bitcoin, Ethereum, or TON has long been accompanied by bans and threats of bans, which hasn’t stopped the industry.” “TON could even function without requiring Telegram at all.”
Even so, TON remains—at least for the time being—dependent on Telegram, even though its long-term potential is an ecosystem that flourishes independently of Telegram. Durov might be obliged to add more moderation and know-your-customer policies to Telegram, which would be an expensive proposition and would put an end to the company’s crypto experiment, depending on the charges.
Campo claimed that Durov never put in place a succession plan while he was at Telegram. He declared, “Nobody really knows how to solve [moderation] at scale.” “Telegram needs to evolve and expand its reach beyond this cohort of sixty hackers.”
