Gram, interrupted: why Telegram founder Pavel Durov’s new cryptocurrency could be in jeopardy
Tech founder Pavel Durov has promised big things from his latest projects — and investors couldn’t wait to get involved. So what’s holding back the launch of the platform many believed could be an online game changer?
10 January 2020
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Josh Nadeau
It all seemed so perfect for Pavel Durov. Already the founder of popular apps like Telegram and VK, the 35-year-old had very publicly started work on Gram: a new cryptocurrency lauded as a finance world gamechanger.
By building a blockchain-based platform called the Telegram Open Network (TON), Durov claimed that Gram could revolutionise how cryptocurrencies are used by combining financial services with Telegram’s messaging app. Gram would be stored in online wallets alongside regular currencies, allowing users to send and receive secure payments across Telegram’s users. With a reported 300 million people already using Telegram across the globe, many saw Gram as poised to become the most quickly-adopted cryptocurrency in history. Investors agreed, raising a ground breaking $1.7 billion through its Initial Coin Offering (ICO).
All that, however, was before Durov was summoned this week for a deposition at the request of the US Securities Exchange Commission (SEC) as part of its ongoing case against Gram.The SEC considers Gram to be a “security”: a tradable financial asset that needs to be registered in order to be legally bought and sold on the American market. TON’s ICO didn’t register Gram as a security, and so on 11 October, the SEC filed an emergency restraining order preventing the platform’s launch. Stephanie Avakian, SEC Division of Enforcement co-director, said this was “intended to prevent Telegram from flooding the US markets with digital tokens that we allege were unlawfully sold.” Another co-director, Steven Peikin, added: “We have repeatedly stated that issuers cannot avoid the federal securities laws just by labelling their product a cryptocurrency or digital token.”
Durov is no stranger to controversy. In 2014 he was dismissed from VK, one of the New East’s most popular social media services, in connection with his refusal to hand over personal data to Russian federal law enforcement. Telegram, which also prides itself on its data protection and security, was later accused of helping terrorists to communicate thanks to its strong encryption protocols. After Durov declined to help the Russian Federal Security Service (FSB) access Telegram’s data, government officials attempted, unsuccessfully, to block the service from within the country.
In the meantime, [Telegram’s cryptocurrency] faces intense scrutiny, and the prospect of a protracted battle in court to come
Durov has long moved away from Russia itself, but TON has also been dampened by a number of setbacks. Claims at the end of last year that a launch was merely “months away” proved drastically premature. Not only was TON not launched in 2019, as was originally intended, but Durov and his team missed a major deadline — 31 October 2019 — after which Durov had guaranteed that dissatisfied ICO investors could demand the return of their funds.
The majority of investors opted not to have their ICO funds returned when the 31 October deadline passed, but TON is still on hold for the time being, with Gram’s next launch deadline set to 30 April 2020.
In the meantime, however, the platform faces intense scrutiny from the SEC and the prospect of a protracted battle in court to come. Two employees have already been asked to give sworn testimony in the case, with Durov’s deposition previously scheduled to take place on 8 January in Dubai. As of yet, however, there has been no official word or news as to whether the deposition took place as planned.
For now, the SEC’s case continues to roll ahead. It filed a request last week to gain access to Telegram’s financial records, although this was ultimately rejected. Prior to the announcement that access to the company’s books would not be granted, Telegram broke its silence by releasing their first public statement on the controversy. The project’s signature feature, the integration of the TON wallet with Telegram’s messenger, will no longer be taking place at the launch, leaving both applications as separate entities that may be integrated in the future. It is unknown whether this decision was a direct result of the court case.
For now, the press release states, Telegram’s priority is to “build the TON Blockchain platform and work out the exact details of the project to ensure that the TON Blockchain and Grams can operate in a way that is compliant with all relevant laws and regulations.”
With so little known about how TON will be allowed to progress, investors, regulators, and cryptocurrency experts have only to wait for updates. Yet for now, one thing seems clear: Pavel Durov will not be changing the world in the way he had once hoped just yet.
