Messaging app Telegram postponed the launch of its TON blockchain for a second time on Wednesday, pushing the new go-live date to April 2021 and triggering a costly clawback clause in its agreement with token-sale investors.
According to a letter to investors obtained by CoinDesk, Telegram is offering to return up to 72% of each investor's stake. The terms were agreed upon when Telegram first postponed TON's launch in October, following a lawsuit from the U.S. Securities and Exchange Commission (SEC) charging Telegram with running an unregistered securities sale that raked in $1.7 billion in 2018. At the time, Telegram set a revised launch deadline of April 30, 2020.
The company lost an initial court battle with the SEC, with a U.S. judge ruling that Telegram can't launch its blockchain or issue its forthcoming "gram" tokens until the case was resolved. On March 24, the initial preliminary injunction was left in place.
On Wednesday, however, Telegram floated another option for those investors who choose to forgo their 72%: They can lend their investment to Telegram until this time next year.
The letter states: "As a token of gratitude for your trust in TON, we are also offering you an alternative option to receive 110% of your original investment by April 30, 2021, which is 53% higher than the Termination Amount."
Telegram is "continuing to engage in discussions with the relevant authorities," the letter continues. Depending on how the negotiations go, those investors could still receive "Grams or potentially another cryptocurrency on the same terms as those in their original Purchase Agreements."
If regulators continue blocking the launch of TON, Telegram will repay the debt using equity. At present, the company is entirely owned by its founder and CEO, Pavel Durov. Citing Telegram's recent growth to 400 million monthly users, the company believes its "equity value will exceed the aggregate amount of its potential debt resulting from this offer by at least several times."
Investor upside?
Sergey Solonin, the founder of payment processing firm QIWI and a $17 million investor in TON, said it's good news for investors.
"The terms are really good, I think a lot of investors will choose to keep their money in Telegram," he said, citing the promise of additional returns.
"There is definitely capital value there, and even if Telegram will ultimately not be allowed to issue grams, I think, in the course of this year, they can find an investor and pay the money back [to the token purchasers]," Solonin said.
Two fund managers told CoinDesk last week that many investors, especially the Silicon Valley venture funds, would prefer to have their token allocations converted into Telegram shares. For some VCs, the tokens have essentially been a proxy for Telegram’s equity, which the company was previously unwilling to sell. Selling equity had been not an option for Durov, they said.
After the March 24 ruling, Telegram went completely silent, making no communications with TON investors until the eleventh hour, according to several investors.
Almost launched
According to several sources close to the Telegram team, the company had been planning to launch the project just days before the final decision to postpone.
On Tuesday, fresh commits had been added to the Telegram Open Network (TON) repository on GitHub, including new documentation on running validator nodes.
Also around that time, the website ton.org went online, duplicating the information earlier published on test.ton.org, which contained code for the TON testnet. Meanwhile, TON Labs, a tech partner of Telegram that helped build the testnet, announced TON OS, "an end-to-end open source infrastructure designed to enable developers and users to work with TON blockchain."
Several companies have been also planning to support TON and its tokens at launch, which, they believed was about to happen earlier this week, the sources told CoinDesk. Seychelles-based Poloniex published an intriguing tweet Wednesday night, announcing "new listings" with Telegram's signature paper plane icon.
However, according to Carlton Fields attorney Andrew Hinkes, doing so could have drawn additional ire from the U.S. courts. By launching, Telegram would have violated its injunction, which could lead to the judge appointing a receiver or external manager for the company.
"If the Court finds that the injunction was violated (whether intentionally or otherwise) it has broad discretion to fashion a remedy that would either coerce compliance or compensate the party seeking to enforce the injunction, including fines and incarceration," Hinkes said, though he noted the receiver appointment would be difficult to enforce for a non-U.S. company.
In the meantime, some TON investors and developers launched a TON Community Foundation, an informal group that has been preparing to launch its own fork of TON in case Telegram wouldn't be able to do so.
The group launched its own testnet version in mid-April, becoming the third TON testnet to go live, following those rolled out by Telegram itself and TON Labs.
Telegram kept on developing TON throughout the legal fight with the SEC, releasing code for TON blockchain nodes, a technical paper on TON's consensus protocol and a native crypto wallet. Telegram even ran several contests for blockchain developers challenging programmers to code wallets, games and other applications for the TON blockchain.