Durov’s decentralised legacy: how Telegram’s blockchain project appeared, closed, and revived

In late 2013, Pavel Durov sold the remaining stake in VKontakte, and in the spring of the same year stepped down as CEO of the social network. Soon after, he left Russia and launched the mobile messaging app Telegram.

It quickly gained popularity thanks to the absence of active moderation and advertising. Moreover, Telegram was pitched as a secure means of communication, built on MTProto encryption technology developed by Pavel’s brother, Nikolai.

The first information about Durov’s plans to create a blockchain project appeared on December 22, 2017. A former VKontakte employee, Anton Rozenberg, revealed that Durov planned to conduct an ICO for Telegram. He disclosed the project’s name — Telegram Open Network (TON) — and the token — Gram.

By that time, Telegram had reached 180 million users, and the crypto industry was riding a boom in ICOs.

Record fundraising at private token sale

The Telegram team decided to hold a closed token sale with professional investors, which resembled the conventional tech-company investment round. One exception: in exchange for funding, investors would receive Gram tokens, but only after the TON network launched.

Applications to participate in the ICO began in January 2018. It was conducted in compliance with U.S. law, since investors from the United States took part.

Details of deals and the execution of investment contracts were reported to the U.S. Securities and Exchange Commission (SEC). For the ICO, Telegram used an exemption under the Securities Act (Reg D), which allowed tokens not to be registered as securities if they perform functions in a digital service and are purchased exclusively by accredited investors.

In the first round the hype was so intense that the number of applications exceeded the planned amount severalfold. The target of raising $850 million was quickly reached. In TON, besides American investors, Asian and Russian entrepreneurs and funds invested (although specific names of investors emerged much later). Another $850 million was raised in the second round.

The Telegram ICO became one of the largest in history. Yet for a long time the project remained shrouded in secrecy: neither Durov nor the Telegram team publicly commented on the progress of development. Media coverage appeared only sporadically, drawn from sparse investor reports.

What TON was envisioned to be

TON was conceived as the next step after Bitcoin and Ethereum in the evolution of blockchain. It was to become a platform for decentralized applications with smart contracts and a virtual machine. But from the outset the TON architecture incorporated scalability far beyond Ethereum’s capabilities.

The network was built on an asynchronous variant of Proof-of-Stake, with validators operating the nodes responsible for its execution.

The TON blockchain consisted of a masterchain, where the core information was stored, and ‘child’ ledgers — workchains — comprising shards and designed for running specific applications.

The Telegram Open Network ecosystem was envisaged to include nine elements that complemented the blockchain:

• A platform for micro-payments and off-chain transactions, including payments for various Telegram Open Network services.
• A domain name system (DNS) — a service for generating account names.
• Distributed hash table — a Kademlia-like system that computes other nodes in the network.
• Various interfaces for applications to interact in browsers and on smartphones.
• A proxy that hides users’ and nodes’ IP addresses for privacy and to prevent DDoS attacks.
• p2p network for accessing the Telegram Open Network, transactions, and shard updates.
• A distributed database for storing information.
• An interface for external integration of TON with other ecosystem elements, including the Telegram messenger.

A key area of work was the integration of TON and the Gram token into Telegram, which would give access to hundreds of millions of users. It was proposed that Gram could be used to pay for advertising in channels.

For details on the technical side of the project, see the white paper and Forklog’s card:

Unconventional PR strategy

Although TON development was conducted behind closed doors, external developers participated, and the Telegram team published results publicly. Code publication became the project’s sole form of public reporting.

That approach later enabled the long-awaited 2020 launch of the project without Telegram and Pavel Durov.

In spring 2019 the TON test network went live. Access was granted to several external teams, including TON Labs, which played a significant role in the project’s future. At the end of May, the test.ton.org site published for the first time an early version of a light client and various documentation.

By autumn it was clear that TON development was in its final stages. The test.ton.org site displayed full node code and launched a block explorer for the test network.

At that time, TON Labs’ technical director Dmitry Goroshevsky said that around 100 nodes were operating in the test network. TON Labs also released a full development toolkit.

Telegram officially confirmed its participation in the TON project for the first time in early October 2019: the official Telegram site published the rules for using the Gram wallet.

SEC lawsuit begins

Under the contract with Telegram, ICO participants could receive Gram tokens only after the TON mainnet launch, but no later than October 31, 2019. This date served as the deadline for the project’s launch. And, given the activity around code publication, Telegram appeared set to meet it. Almost all economic and technical details became clear shortly before launch.

However, on the eve of launch, on October 11, the SEC suddenly announced “emergency measures and restrictions” against two offshore TON-related companies. The SEC said Gram tokens were sold to investors unlawfully. It also said that rights to 1 billion Gram were sold to 39 U.S. residents.

The Commission obtained a temporary injunction on distributing Gram, which made TON launch impossible, and also filed suit against Telegram for selling unregistered securities.

The fate of Durov’s blockchain project was in the hands of the court. In response, Telegram asked the court to dismiss the suit, arguing that Gram is not a security, calling it a “currency and/or product.”

In turn, the SEC presented the court with correspondence from Telegram’s investment adviser John Heyman, in which he spoke about selling tokens rather than rights to them (SAFT contracts), and letters from Shyam Parekh, who explicitly called Gram a security.

Additionally, the agency noted that a secondary market for Gram had formed even before TON’s launch. Heyman testified to the SEC’s arguments in court.

Telegram exits the project and launches Free TON

Another argument put forward by the Commission was the unpreparedness of the TON blockchain platform itself, hence the token Gram’s lack of practical (utilitarian) functions.

To counter this, in February 2020 the TON Community Foundation (TCF) — a community formed around the project during development — sent an official filing to the judge. The letter stated that “the TON blockchain is fully operational and can be launched in five seconds.”

TCF was a coalition of developers coordinated by a council of 22 founding companies, including MixBytes, TON Labs, Da Vinci Capital, Atomic Wallet, and several national groups. In total, TCF counted about 2,000 people.

Despite support from the American crypto industry and repeated attempts to persuade the court of its case, by May Telegram’s legal options had been exhausted.

Ultimately, Pavel Durov announced the project’s closure, and his company did not challenge the court injunction on Gram issuance. The outcome set a troubling precedent that threatened all legitimate token sales in the United States.

Meanwhile, all technical elements of TON were ready by spring 2020, and the community announced the possibility of launching the network without Telegram’s involvement, which had refused to retain control over the project. The “decentralized launch” scenario was supported by leading network validators.

The new project received the name Free TON, and its mainnet was launched on May 7. The blockchain platform has no legal entity.

Free TON and meritocracy

Inside the project’s internal token replaced Gram with Crystal. Participants in the launch, including TON Labs, P2P.org, Kuna exchange, Everstake, Chorus, Anatoly Kaplan (founder of ForkLog) and others, signed the Declaration of Decentralization.

In the absence of Pavel Durov’s team and major investors, decentralization and Telegram’s technical base became the main resource of Free TON. The de facto heir to Telegram in the Free TON ecosystem became the TON Surf messenger.

Decentralisation and a meritocratic approach: The main portion of Crystal issuance was intended for those who contribute to the project.

Within six months of launch, some coins went to new Free TON partners who promote the project and Crystal among their users. Tokens also go to winners of regular contests that contribute to collective problem-solving for the project’s development.

The first three contests focused on creating tools for scalable and secure network operations, developing a voting system, and refining the developer toolset.

Free TON features a public governance system. It comprises Global governance — the founders’ council that steers protocol development via token voting.

Other community members can form “working groups” (Sub-governance). There are currently 15 such groups in Free TON, united either by focus areas (DeFi, eSports, DevOps, etc.) or by nationality. Each group has its own voting system.

Half-year results

According to block explorer TON Live, at the time of writing more than 28,000 accounts have been opened on the Free TON blockchain and around 29 million transactions have been processed. The addition of the first 30 validators to the main network took place in November, and as of writing there are more than 400.

Crystal has, over a few months, been listed on several exchanges. According to CoinGecko, it trades on HitBTC, Coineal and Bitcoin.com. In December, trading of Crystal on Kuna exchange began.

On December 22 an online Free TON meetup took place, during which participants reviewed 2020 and announced achievement of “real decentralization” of the project, and in a live stream generated a symbolic block.

The post’s caption included the Declaration of Decentralization, as well as a special smart contract through which new Free TON participants can sign the document on the blockchain. Since the Free TON blockchain launched, this has been done by almost 10,000 people and organisations.

Pavel Durov was forced to abandon the ambitious Telegram Open Network blockchain project. Yet his legacy did not die but managed to take root and continue to develop.

The Free TON example shows that the main value of a blockchain project can lie not only in money and high-profile founders but also in the community.

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