Pavel Durov, the founder and CEO of the social networking platform Telegram, had simply arrived in his personal jet at a small airport outdoors of Paris, France, on Saturday when he was arrested by French officers and brought into custody. Durov’s detention reverberated internationally 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, buyers who’ve financed the corporate and salivated over a possible IPO are watching intently. Many are doubtless 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 also be tied to a $14 billion cryptocurrency, referred to as TON.
Telegram could seem much like different messaging platforms like WhatsApp at first look, however it’s totally different in key respects. That features its embrace of blockchain know-how, 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 buyers are attempting to distance the 2 entities.
“We wouldn’t call this at all an ‘existential’ crisis for Telegram,” the TON backer Kingsway Capital wrote in an investor letter Tuesday morning, in keeping with a replica reviewed by Fortune.
However whereas Durov has just lately boasted of Telegram’s close to profitability, and even touted plans to take the corporate public, some buyers and specialists who spoke with Fortune characterised the corporate as a “dictatorship” whose route, and prospects, have 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 outdoors of Russia to be a “neutral platform” and left his native nation.
In the meantime, Telegram’s lax strategy to moderation has made it a well-liked discussion board for everybody from these on the lookout for unfiltered information on the struggle in Ukraine to U.S. right-wing ideologues. The platform can also 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 have confidence in it being secure,” stated Natalia Krapiva, a senior tech counsel for the digital rights nonprofit Entry Now in an interview with Fortune.
Regardless of its large progress, Telegram has lengthy struggled to monetize the platform. In accordance with Elies Campo, a former worker targeted on progress and enterprise growth at Telegram from 2015 by means of 2021, Durov prevented elevating cash by providing fairness in his firm to buyers due to the dangerous style left in his mouth from VKontakte. “It’s evolved organically based on these experiences and the need for control,” Campo instructed Fortune, including that staff weren’t even granted fairness.
These experiences embrace Telegram’s 2018 try to capitalize on the red-hot development 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 buyers after it introduced a pivot into crypto—a discipline that dovetailed with Durov’s professed beliefs of free speech and privateness.
However the U.S. Securities and Trade 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 buyers.
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 accordance with the Wall Road Journal, Durov provided non-U.S. buyers the power 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 “at least a few hundred million dollars per year to keep going.” Nonetheless, it didn’t supply 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 value, 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 fascinating 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, buyers 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 gaggle 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, at the least in authorized construction, was impartial 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 mission’s web site and GitHub account in 2021.
With the crypto world awash in also-ran blockchains that sought to problem Bitcoin and Ethereum, buyers instructed Fortune that TON was totally different due to its connections with Telegram. Even when Ethereum and Solana (one other widespread blockchain) have higher tech, they don’t have mainstream customers. Telegram integrating TON, nevertheless, might imply the long-awaited killer app for crypto and kickstart adoption of the blockchain’s broader ecosystem. “TON is exciting for mostly reasons of distribution,” stated Alex Felix, the chief funding officer at CoinFund, which invests within the token. “That was the big difference in what they were bringing to market.”
On this sense, Telegram was poised to attain what Meta’s Mark Zuckerberg had sought to do in 2018 with an ill-fated mission often known as Libra, which promised to introduce a local cryptocurrency for customers world wide. That mission floor to a halt below withering scrutiny from the U.S. Congress and different lawmakers.
After launching the general public model of its blockchain in Could 2021, TON would face accusations of centralization—a taboo in crypto—particularly given guidelines round governance and token distribution that some buyers and analysts described as opaque. The crypto analysis agency White Rabbit discovered that 85.8% of the preliminary token provide was mined by a couple of teams of miners related with one another and affiliated with the TON Basis. Campo instructed 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 buyers below 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 issues round transparency and regulation. “It’s not easily accessible, and you can’t verify all the information,” they stated.
That didn’t cease different buyers. 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 gorgeous gamble for buyers hoping to discover a blockchain utility 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 widespread Hamster Kombat.
“You can think of Telegram as a massive bootstrap for the TON ecosystem,” stated Yat Siu, the chairman of the crypto large Animoca Manufacturers, which additionally runs the biggest validator on TON.
TON additionally represented one thing useful to Telegram. Its success meant that the renegade platform might implement funds with out the necessity to depend on fiat currencies—and extra importantly, it might probably strike gold on a income stream that will preclude the necessity to usher in outdoors buyers. “I think it would be very difficult for Telegram to be a public company and have TON fulfill [Durov’s] vision,” stated Felix. “I don’t know that they’re mutually exclusive, but it’s probably pick one or the other.”
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 doubtless face making an attempt to go public. “We talked about that a lot internally,” he instructed Fortune. “How realistic is it that they would actually IPO, and to what extent might they be thinking about [TON] as the path to monetize.”
When a CEO builds an organization round themselves and maintains tight management, there are distinct dangers. In accordance with Campo, the previous worker, Telegram solely has round 60 core staff—a staggeringly low quantity for a social media platform boasting practically one billion customers. “Everything goes through this guy,” stated Graham. “It’s a dictatorship.”
The mud remains to be settling from Durov’s arrest, and it’s not even clear but which expenses—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, dropping $3 billion.
Buyers are nonetheless grappling with the fallout. “The history of blockchains such as Bitcoin, Ethereum or TON has long been accompanied by bans and threats of bans, which hasn’t stopped the industry,” Kingsway Capital wrote within the investor letter. “TON could even operate entirely independent of Telegram.”
Nonetheless, whereas the long run promise of TON could be an ecosystem that thrives outdoors of Telegram, it’s nonetheless—at the least for now—depending on Telegram. Relying on the fees, Durov might be compelled to implement extra moderation and know-your-customer provisions inside Telegram—an costly proposition that would spell the tip of its crypto experiment.
Campo stated that in his time at Telegram, Durov by no means applied a succession plan. “Nobody really knows how to solve [moderation] at scale,” he stated. “Telegram will have to change and go beyond this 60-person group of hackers.”
