Telegram has had a tough time in recent weeks. The messaging app’s founder, Pavel Durov, was arrested in France in late August on charges of running a company that aided in the distribution of child sexual abuse material, facilitating drug trafficking and organized fraud, and has since been released on €5 million bail. As expected, this has caused the price of the network’s cryptocurrency, Toncoin, to plummet by a third.
But there was no gloom in the long line of people waiting to get into a party hosted by TON, a blockchain that runs on Telegram, on Seoul’s upscale Dosan-daero street last Wednesday. In fact, developers, marketers, investors and other participants in the blockchain ecosystem were in a celebratory mood. Just a few hours earlier, TON had announced at Korea Blockchain Week that it had surpassed 1 billion transactions on its blockchain.
Surprisingly, Durov's high-profile arrest turned out to be something of a boon for Telegram: the app's downloads skyrocketed immediately after his arrest, and TON's metrics also seemed to improve.
“Last week, TON hit an all-time high in active users and transactions, but honestly, it was probably one of the worst weeks ever for TON,” Jack Booth, co-founder of TON Society, which manages the TON community, said at the Korea Blockchain Week conference.
A complex relationship
In theory, Durov’s position should not have a significant impact on TON – Telegram and the TON Foundation, which develops the blockchain, claim to be independent entities – but the reality is more complicated.
Durov launched TON alongside his brother Nikolai Durov under Telegram, but the messaging app was forced to abandon blockchain after the U.S. Securities and Exchange Commission sued Telegram for conducting a large-scale unregistered ICO. Since then, the app has tried to distance itself from TON, at least by separating its corporate structure.
Meanwhile, a group of open source developers and blockchain enthusiasts founded The Open Network Foundation (TON Foundation) to continue the development of the blockchain. Since then, TON has spawned several organizations to support its burgeoning operations, including the TON Society and The Open Platform (TOP), which created a TON-based cryptocurrency wallet that works with Telegram.
And to address concerns that apps' disproportionate holdings of TON could undermine the network's decentralization, Durov announced plans in February to “limit Telegram's share of TON to roughly 10% of the total supply.”
TON Society's Jack Booth speaking at Korea Blockchain Week 2024. Image Credit: TechCrunch
Still, the fact that people panicked and sold their Tokens speaks to a perception that TON and Telegram are closely related and, to some extent, interdependent. A person who goes by the name Minho told me at Korea Blockchain Week that he had been buying more TON since Durov’s arrest, in the hope that “the price will recover after his release.”
Operationally, Telegram’s ambitions to become a super app like WeChat also depend heavily on the success of TON. To attract third-party developers, Telegram needs not only the right tech stack, but also a solid payment network to support in-app commerce. However, instead of using a fiat currency system, it will opt for cryptocurrency.
“When you’re tying your ecosystem to the success of the Telegram platform, naturally when that is called into question, people start to wonder what’s going to happen,” Booth said. Still, Booth stressed that because TON is a blockchain network, it has enough independence to survive without Telegram.
“At the end of the day, the TON ecosystem just uses Telegram as a front-end experience. The app also works on the website, so even if the worst case scenario of Telegram shutting down occurs, TON will still be viable,” he said.
Optimism Abounds
One billion transactions sounds like a big number, but how big is TON, really? Decentralized networks are often tracked by different parties and measured by different metrics, making it hard to compare on-chain activity. But to put it in perspective, TON had 14.6 million daily transactions as of September 10th. That's about 40% of the “non-voting” transactions of Solana, a more established blockchain that is currently the fifth-largest by market cap. Toncoin is tenth by market cap.
Still, the total amount locked in TON is just $408 million, according to DefiLama, roughly 8% of Solana’s current value of $4.77 billion.
These figures are in line with Booth's statement that TON's current boom is driven by a handful of viral “tap-to-earn” games that reward users with in-game assets at the click of a button, which players then trade on exchanges that accept them. Solana, meanwhile, has attracted far more capital thanks to a vibrant and far more diverse decentralized finance (DeFi) ecosystem.
According to Booth, one TON-based game, Hamster Kombat, in which players role-play as the CEO of a cryptocurrency exchange, has reached 250 million monthly active users. While these numbers are impressive, they should not be taken with a pinch of salt, as the “tap to earn” mechanic used in the game is quite boring by modern video game standards, raising legitimate questions about the longevity of such games.
But for TON, and by extension Telegram, the value of clicker games lies in their ability to get users onto Web3 with a few taps (and keep them there with financial incentives), Booth said in his speech. It's also important to note that to play Web3 games, users first have to jump through a number of hoops: they have to download an app, set up a cryptocurrency wallet, and keep a long wallet passkey safe. So anything that makes things easier is likely to be a win.
That's not to say the studio isn't working on creating more sophisticated game titles for TON. Catizen, which allows players to manage and optimize their herds of cats, has attracted 30 million monthly users, more than 2 million of whom are active on the blockchain, Tim Wong, chairman of the Catizen Foundation, told TechCrunch. In less than six months, the game has generated $21 million in revenue.
“Most Web3 games acquire users without generating in-game revenue,” Wong said. “The mini-game ecosystem is already well-established on WeChat and is just starting on Telegram. We believe that human desire for quality gameplay and the desire to spend money on entertainment are universal.”
Given the charges against Durov and Telegram’s frequent appearances in connection with bad news, we may not see a surge in TONCoin anytime soon. But as is often the case with crypto projects, there is a fair amount of enthusiasm and optimism on display here. Roy Chen, a Danish game developer who developed the TON-powered console-inspired title HypeSaints, noted that the main impact of Durov’s arrest is on TONCoin’s price, not the ecosystem itself:
“After all, thanks to Telegram’s 950 million users, the potential for mass adoption of cryptocurrencies through TON is huge,” he said.