Telegram has attracted billions from investors. But the arrest of its founder casts doubt on the messaging giant — and its $14 billion crypto arm

Details of Durov’s retention are still emerging, and in the meantime, investors who have bankrolled the company and salivated over a potential IPO are watching closely. Many are likely concerned about the degree to which Durov’s fate will determine the future of Telegram, a platform that boasts nearly a billion users but is also tied to a $14 billion cryptocurrency called TON.

Telegram may seem similar to other messaging platforms like WhatsApp at first glance, but it is different in key ways. This includes the adoption of blockchain technology, including its tight integration with the TON cryptocurrency through gaming, payments and a network of advertisers on its platform.

With Durov’s future up in the air, some investors are trying to distance the two entities.

“We wouldn’t call this an ‘existential’ crisis for Telegram at all,” TON backer Kingsway Capital wrote in a letter to investors Tuesday morning, according to a copy reviewed by Fortune.

But while Durov recently bragged about Telegram’s near-breakeven and even laid out plans to take the company public, some investors and experts who spoke with wealth characterized the company as a “dictatorship” whose direction and outlook were tied to Durov and his volatile crypto gambit.

A Telegram spokesperson did not immediately respond to a request for comment.

Telegram has long been a platform full of contradictions. Russian-born Durov had previously founded VKontakte, his native country’s largest social network, but balked at the government’s strict demands. Although he still faces accusations of collaboration with the Kremlin – which Telegram representatives have strongly denied – Durov founded Telegram outside of Russia to be a “neutral platform” and left his home country.

Meanwhile, Telegram’s lax approach to moderation has made it a popular forum for everyone from those seeking unfiltered news about the war in Ukraine to right-wing American ideologues. The platform is also full of drug dealers and scam chat rooms. Its user base has now surpassed 900 million, Durov said in March.

Although it’s supposed to be a privacy-focused app, Telegram still faces criticism from security experts for its lack of end-to-end encryption by default. “We don’t trust its security,” Natalia Krapiva, senior technology adviser for the nonprofit digital rights organization Access Now, said in an interview wealth.

Despite its massive growth, Telegram has long struggled to monetize the platform. According to Elies Campo, a former employee focused on growth and business development at Telegram from 2015 to 2021, Durov avoided raising money by offering investors shares in his company because of the bad taste left in VKontakte’s mouth. “It evolved organically based on those experiences and the need for control,” Campo said wealthadding that employees were not even given equity.

Those experiences include Telegram’s 2018 attempt to capitalize on the hot trend of initial coin offerings, or ICOs — the crypto world’s spin on initial public offerings that saw buyers receive digital tokens instead of shares.

Telegram’s ICO succeeded spectacularly, leading the platform to raise $1.7 billion from investors after announcing a shift in crypto—a field that matched Durov’s stated ideals of freedom of expression and privacy.

But the US Securities and Exchange Commission had other ideas. The agency sued Telegram in 2019, claiming the ICO constituted an unregistered securities offering, and ordered the company to halt its planned token launch and return more than $1.2 billion to investors.

The episode would shape Telegram’s financial future, throwing Telegram into even greater turmoil after it was forced to return funds it had yet to spend. right Wall Street JournalDurov offered non-US investors the ability to turn their repayments into one-year loans. But an American investor, with whom he spoke wealth speaking on condition of anonymity, said they received only a partial refund.

Following the aborted launch of the token, Telegram owed creditors $700 million, with Durov announcing on his own platform that the company needs “at least a few hundred million dollars a year to continue.” However, it did not offer equity, instead raising funds through debt financing in the form of bonds, which included a sweetener of a 10 percent discount to the listing price if Telegram ever went public. Telegram has raised $1 billion in a bond offering, including $150 million from Mubadala and Abu Dhabi Catalyst Partners — and, in an interesting twist to events at Durov’s latest social network, the investment fund of Russia – in early 2021. Telegram subsequently raised capital for subsequent funding rounds of $210 million in 2023 and $330 million in 2024.

Before TON, investors never had a way to make a venture-like investment in the company. But that would change.

After Telegram abandoned its crypto plans, a group with deep roots in Telegram and VKontakte, including former VK CEO Andrew Rogozov, continued to work on a blockchain, eventually launching a new organization called the TON Foundation which, the little in the legal structure, it was independent. of the social media network.

Community developers worked to launch the blockchain with an apparent split from Telegram, which transferred rights to the crypto project’s website and GitHub account in 2021.

With the crypto world filled with blockchains that have tried to challenge Bitcoin and Ethereum, investors said wealth that TON was different because of its connections with Telegram. Even though Ethereum and Solana (another popular blockchain) have better technology, they don’t have mainstream users. However, Telegram integrating TON could mean the long-awaited killer app for crypto and early adoption of the broader blockchain ecosystem. “TON is interesting mainly for distribution reasons,” said Alex Felix, chief investment officer at CoinFund, which invests in the token. “That was the big difference in what they were bringing to the market.”

In this regard, Telegram was poised to accomplish what Meta’s Mark Zuckerberg sought to do in 2018 with a nefarious project known as Libra, which promised to introduce a native cryptocurrency to users around the world. This project has stalled under close scrutiny from the US Congress and other lawmakers.

After launching the public version of its blockchain in May 2021, TON would face accusations of centralization — a taboo in crypto — especially given the rules on governance and token distribution that some investors and analysts described as opaque. Crypto research firm White Rabbit found that 85.8% of the initial token offering was mined by a few groups of miners connected to each other and affiliated with the TON Foundation. Campo said wealth that the relationship between Telegram and TON is still unclear, including how much of the token Telegram owns.

Durov later announced his plans to cap Telegram’s share of TON at around 10% of the supply, selling the surplus to long-term investors in the lockup, to support a “decentralized ecosystem”.

A crypto VC, he talked to wealth speaking on condition of anonymity to discuss their investment plans, said they decided to pass on TON because of transparency and regulatory concerns. “It’s not easily accessible and you can’t verify all the information,” they said.

That didn’t stop other investors. TON didn’t serve as a direct proxy to invest in Telegram, but it was the next best thing. And especially as Telegram began to integrate crypto into its platform, TON became an attractive gamble for investors hoping to find a blockchain application that would be used by real people. After Telegram announced a TON paid ad network earlier this year, the market capitalization exploded to over $25 billion, further boosted by the success of TON minigames offered on Telegram, such as the popular Hamster Kombat.

“You can think of Telegram as a massive bootstrap for the TON ecosystem,” said Yat Siu, president of crypto giant Animoca Brands, which also owns the largest validator on TON.

TON also represented something valuable for Telegram. Its success meant that the Renegade platform could implement payments without having to rely on fiat currencies – and more importantly, it could strike gold on a revenue stream that would preclude the need to attract outside investors. “I think it would be very difficult for Telegram to be a public company and for TON to fulfill Durov’s vision,” Felix said. “I don’t know if they are mutually exclusive, but we probably choose one or the other.”

Matthew Graham, founder and CEO of VC firm Ryze Labs, said one of the reasons he invested in TON was because of the difficulty Telegram would likely face in trying to go public. “We’ve talked about it a lot internally,” he said wealth. “How realistic is it that it would actually IPO and to what extent they might think about (TON) as a way to monetize.”

When a CEO builds a company around himself and maintains tight control, there are distinct risks. According to Campo, the former employee, Telegram only has about 60 core employees — a staggeringly low number for a social media platform with nearly a billion users. “Everything goes through this guy,” Graham said. “It’s a dictatorship.”

The dust is still settling since Durov’s arrest, and it’s not even clear yet what charges—if any—he will actually face. There was a proxy for assessing the impact of his arrest on Telegram: TON price fell by as much as 25% on Sunday, losing $3 billion.

Investors are still dealing with the consequences. “The history of blockchains like Bitcoin, Ethereum or TON has long been accompanied by bans and threats of bans, which did not stop the industry,” Kingsway Capital wrote in the investor letter. “TON could even work completely independently of Telegram.”

However, while the future promise of TON would be an ecosystem that thrives outside of Telegram, it is still – at least for now – dependent on Telegram. Depending on the charges, Durov could be forced to implement more moderation and know-your-customer provisions in Telegram — a costly proposition that could spell the end of his crypto experiment.

Campo said that during his time at Telegram, Durov never implemented a succession plan. “Nobody really knows how to solve (moderation) at scale,” he said. “Telegram will have to change and overcome this 60-person group of hackers.”