After TON’s Demise, US-Based Blockchain Projects “Need to Launch ASAP”

2019 was marked by a number of high-profile court cases between various cryptocurrency companies and the branch of the United States government known as the Securities and Exchange Commission, or SEC.

Perhaps the most famous battles of the year were fought between the SEC and two encrypted messaging companies that had, for separate reasons, made movements toward crypto: the Canada-based Kik, which held a $100 million sale of “KIN” tokens in 2017, and Berlin-based Telegram, which sold $1.7 billion worth of “GRAM” tokens for its “TON” network in 2018.

While Kik seems to have pulled out all the stops to continue to fight its battle against the SEC, Telegram seems to have made a different decision. Earlier this week, Telegram founder Pavel Durov announced an important decision: the company is giving up on the project.

“Today is a sad day for us here at Telegram,” Durov wrote in his public channel on Tuesday. “We are announcing the discontinuation of our Blockchain project."

A blog post that accompanied the announcement explained that essentially, the SEC's winning of a preliminary injunction in a U.S. court was what caused Telegram to make the decision. This preliminary victory prohibited Telegram from launching TON or distributing GRAM tokens.

Aiyo so do we get telegram TON refunds or what
— cobie (@CryptoCobain) May 13, 2020

The move is particularly surprising because of Telegram’s announcement less than two weeks ago that it would be launching the network in April of next year.

What led to the sudden shift?

Telegram "could never live up to its own whitepaper."

“Pavel Durov was between a rock and a hard place,” explained Will Martino, co-founder and CEO of blockchain firm Kadena. Martino also previously helped build JP Morgan's first blockchain, known as “Juno”, and was the Tech Lead for the SEC's Cryptocurrency Steering Committee.

“On one side, TON violated well-established fundraising norms and laws regarding the insanely large amount raised along with the promises of high Liquidity and returns at launch,” Martino explained.

“On the other side, TON oversold what it could technically deliver to such an extreme degree that it could never live up to its own whitepaper.”

In fact, Martino believes that “TON was doomed from Day 1,” “My 'I’m-not-a-lawyer' suggestion to anyone that asked for my opinion was to stay away. My 'I’m-an-engineer' opinion was that TON was not feasible.”

Will Martino, co-founder and CEO of blockchain firm Kadena.

Instead, Martino believes that the project was “a classic overheated market moonshot venture that was begging to be made into an example.”

“From the beginning, there was way too much hype, and that’s saying a lot in crypto.”

Perhaps this is why Martino doesn’t seem to have found the decision to abandon the project very surprising--instead, “what’s surprising is that TON had telegraphed that they were in a position to make a really good defense from a regulatory perspective,” Martino said.

After all, “they had a world-class legal team to execute their case.”

Therefore, the choice to abandon the project is likely the only option that Telegramultimately found itself with: “they took the case in a direction that ultimately lost,” Martino said. “Given the high caliber of their legal team, I would not be surprised if, during discovery, it became clear to TON that they needed to shut down the project.”

The US Government "could not let TON go unchallenged."

TON’s defeat also seems to be part of a greater pattern of US government pushback against big tech companies who attempt to foray into cryptocurrency: after all, in addition to the SEC’s battle with Kik, Facebook’s Libra project has been the subject of much fire and fury from lawmakers in the United States.

Therefore, the victories that the US government has had over these high-profile crypto projects--the quashing of TON and the delay of Libra’s launch, as well as changes to its whitepaper--seem to send a clear message to other big tech companies who want to launch crypto projects.

Telegram didn’t shut down TON because of the US courts.

They shut it down because they realized the world didn’t need another smart contract blockchain that didn’t have any product market fit
— Andrew Kang (@Rewkang) May 13, 2020

“Libra has withered due to Facebook’s hubris,” Martino said. “TON is now dead because it was too big to fly that close to the sun without getting burned.”

Indeed, “the United States government could not let TON go unchallenged given the attention and significance of the project for the crypto industry at large.”

Telegram must have seen this coming: “evidence submitted by the SEC showed that the government was well-prepared to make their argument that TON had not adhered to existing regulations.”

What does this mean for the future of crypto in the United States?

Therefore, while companies like Kik and Telegram may have sought to “pave the way forward” for other tech companies to move into crypto, their efforts may have backfired: if anything, the SEC and the rest of the United States government may have used these legal battles as a way to sharpen their regulatory knives.

“Following Kik’s Kin, Facebook’s Libra, and now Telegram’s TON, the SEC has shown that it is extremely clear and consistent on one point,” Martino explained: “if you’re an existing social [or] chat application, you cannot ignore the law and launch your own cryptocurrency.”

And Martino believes that the US will only continue down the path of legal restriction: “my sense is that by 2021-2022, it will be impossible to launch a public blockchain in the United States unless the regulatory landscape changes,” he said. “Unfortunately, the TON case only makes that more likely.”

Therefore, time is of the essence: “every US-based blockchain project that hasn’t launched yet needs to do so ASAP,” he said.

“This comes at a time when other countries, especially China, have committed significant resources to develop their blockchain capabilities. The US is at risk of falling behind when it comes to being a major player in the future of technology.”

Finance Magnates reached out to Telegram for commentary, but did not hear back before press time. Comments will be added as they are received.