Telegram’s court battles just keep coming. From their fight with the Russian court over user data in April 2018 to the SEC lawsuit in 2019. Due to these attacks from the US and Russian governments, investors are left with concerns over how Telegram will overcome these obstacles.
Telegram’s Ongoing Battle With Regulators
Telegram, a cloud-based mobile and desktop messaging app, has a tough road ahead.
Between January and March of 2018, Telegram raised $1.7 billion in the second largest Initial Coin Offering (ICO) to this date, behind Block.one’s $4 billion sale of its EOS blockchain.
In April of that year, Telegram went to court with the Russian Government who demanded the handover of private keys from Russian users. In the case, the Russian court ruled that if they failed to hand them over they would face a country wide ban. The result had Telegram find solutions to prevent this blockade, and to this day Russia has been primarily unsuccessful.
Fast forward to 2019, now we have the Securities and Exchange Commission (SEC) after Telegram. The SEC accused Telegram of an illegal securities sale over its ICO. A total of $424.5 million worth of tokens were sold to US citizens, resulting in the action of the SEC, whose job is to look after US investors. They claim a security sale must be properly registered with the SEC, and that Telegram failed to do so.
As part of their White Paper, Telegram promised that if they were unable to launch TON (Telegram Open Network) by October 31st, 2019 they would refund investors. To their surprise, the SEC moved the October 24th, 2019 hearing to February 18th, 2020 ruling that Telegram should not distribute its tokens before that date.
This prompted Telegram to issue an announcement to their investors on whether to give a 77% refund as they intended. The investors voted to allow an extension to their launch date to April 2020, putting trust in Telegram’s CEO and founder, and giving enough time for the court ruling by delaying the refund.
It’s safe to say that outside players are affecting Telegram’s plans, and there are concerns as to whether or not this will add more costs to their operating budget.
Prior to the ICO’s fundraising, Telegram was self-funded by the founder himself, Pavel Durov, with the earnings from his success with his past company VK. Telegram has no plans to monetize any of their active user base and does not promote ads on its platform.
This poses serious concerns for investors, as the company will eventually have to provide a business model that generates revenue. Otherwise, their expenditures will prove to be unsustainable. Though their ICO helped in fueling their operations, with no revenue coming in and TON still unreleased, it begs the question, “how much of that cash have they already burned?”
From leaked data reported on by Hackernoon (2017), Telegram spent over $70 million on servers, security, user verification, and employee salaries. Further, they estimate spending an additional $620 million over the next 4 years, with expectations of high costs for managing their own blockchain.
By raising $1.7 billion, they are covered for that period, however, if sidesteps like these regulatory hearings continue to delay their progress, this could pose a heavy (possibly overwhelming) burden on their capital.
Luckily for Telegram, Facebook has taken the spotlight as the immediate target for the Senate Judiciary Committee in the United States. With growing concerns that the Senate may push to make Libra (Facebook’s proposed digital currency) a security, we may expect them to take similar action on TON if their launch goes forward, as planned.
Telegram currently has 300 million users. Although not as large as Facebook’s 2.45 billion users, launching TON may turn the focus of congress towards them. A live application with 300 million users could pose a notable threat to the US monetary policy.
At this time, it is difficult to gauge whether or not governments could stop Telegram entirely. As their blockchain renders them decentralized in nature, they could potentially elude such a ban.
Nevertheless, it is still worth noting efforts made on behalf of governments could cause a significant impact on the company’s operations. It would also influence the trust the investors have on the ability of the company to succeed. Thus, what happens next depends on the SEC ruling come February. Until then, all we can do is wait and see.