Pavel Durov, founder and CEO of the social networking platform Telegram, was arrested and detained by French authorities on Saturday after arriving on a private jet at a small airport outside Paris. Durov's detention sent shockwaves around the world and prompted X-owner Elon Musk and others to demand answers from French President Emmanuel Macron, who insisted the investigation was not political.
While details surrounding Durov's detention are still emerging, in the meantime, investors who funded the company and were banking on a potential IPO are keeping a close eye on the company. Many will be anxious to see how much Durov's fate will determine the future of Telegram, a platform that boasts nearly 1 billion users and is tied to the $14 billion cryptocurrency TON.
While at first glance Telegram may seem similar to other messaging platforms such as WhatsApp, it differs in important ways, including its embrace of blockchain technology, including tight integration with the cryptocurrency TON through the platform's games, payments, and advertiser network.
With Durov's future uncertain, some investors are distancing themselves from both companies.
“This certainly does not constitute an 'existential crisis' for Telegram,” TON backer Kingsway Capital wrote in an investor letter on Tuesday morning. luck.
But while Durov recently boasted that Telegram is nearly profitable and even touted plans to go public, some investors and experts who spoke with him said: luck He described the company as a “dictatorial regime” whose direction and outlook depends on Durov and his shaky cryptocurrency strategies.
A Telegram spokesman did not immediately respond to a request for comment.
Telegram has long been a platform riddled with contradictions. The Russian-born Durov previously founded VKontakte, the largest social network in his home country, but found himself reluctant to comply with the government's stringent requirements. Though he still faces accusations of collaboration with the Kremlin (a charge Telegram representatives vehemently deny), Durov founded Telegram outside Russia to be a “neutral platform” and left his home country.
Meanwhile, Telegram's lax approach to content moderation has made it a popular forum for everyone from people looking for unfiltered news about the war in Ukraine to right-wing ideologues in the U.S. The platform is also rife with chat rooms for drug dealers and scammers. Durov said in March that its user base now exceeds 900 million.
Telegram is billed as a privacy-focused app, but it has been criticized by security experts for not having end-to-end encryption by default. “We're not convinced it's safe,” Natalia Krapiva, senior technical adviser at the digital rights nonprofit Access Now, said in an interview. luck.
Despite its rapid growth, Telegram has long struggled to monetize its platform. Eliez Campo, a former employee who focused on growth and business development at Telegram from 2015 to 2021, said Durov avoided raising capital by offering investors shares in the company after a bad experience at VKontakte. “Based on those experiences and the need for control, Telegram has evolved organically,” Campo said. luck, He added that employees aren't even being given stock.
Those experiences include Telegram's attempt in 2018 to capitalize on initial coin offerings (ICOs), a cryptocurrency-initiative following on from initial public offerings (IPOs), in which buyers receive digital tokens rather than shares.
Telegram's ICO was a smashing success, with the platform raising $1.7 billion from investors after announcing its conversion to cryptocurrency, an area that dovetails with Durov's professed ideals of free speech and privacy.
But the U.S. Securities and Exchange Commission had other ideas: It sued Telegram in 2019, alleging that the ICO constituted an unregistered securities offering, and ordered the company to halt its plans to issue tokens and return more than $1.2 billion to investors.
The incident defined Telegram's financial future, forcing the company to return outstanding funds, plunging it into further turmoil. The Wall Street JournalDurov offered investors outside the U.S. the option to convert their refunds into one-year loans. luck They said they only received partial refunds, on condition of anonymity.
After the aborted token launch, Telegram reportedly owed $700 million to creditors, with Durov announcing on his platform that the company “needs at least hundreds of millions of dollars per year to survive.” Still, the company did not issue shares, but instead raised funds through debt financing in the form of bonds. The bonds included a 10% discount from the listing price if Telegram were to go public. Telegram raised $1 billion through the bond issue, including $150 million from Mubadala and Abu Dhabi Catalyst Partners, and, in an interesting development given what happened with Durov's last social network, a Russian state investment fund in early 2021. Telegram subsequently raised funds in funding rounds of $210 million in 2023 and $330 million in 2024.
Before TON, there was no way for investors to make venture-like investments in the company. But that's changing.
After Telegram abandoned its cryptocurrency plans, a group with deep roots in Telegram and VKontakte (including former VK CEO Andrew Rogozov) continued blockchain development, eventually founding a new organization called the TON Foundation that was, at least in legal structure, separate from the social media network.
Community developers had been working to launch the blockchain ostensibly separate from Telegram, which in 2021 handed over rights to the crypto project's website and GitHub account.
The cryptocurrency world is full of loser blockchains trying to challenge Bitcoin and Ethereum, but investors luck What sets TON apart is its connection to Telegram. Even though Ethereum and Solana (another popular blockchain) have better technology, they lack mainstream users. But if Telegram integrated TON, it could become crypto's long-awaited killer app and drive adoption of the blockchain's broader ecosystem. “TON is exciting primarily for distribution reasons,” says Alex Felix, chief investment officer at CoinFund, which has invested in the token. “That was a big difference in what they were putting into the market.”
In this sense, Telegram was trying to achieve what Meta’s Mark Zuckerberg was trying to achieve in 2018 with his ill-fated project known as Libra, which promised to introduce a native cryptocurrency to users around the world, a project that was halted under heavy scrutiny from the U.S. Congress and other lawmakers.
After releasing a public version of its blockchain in May 2021, TON will likely face accusations of centralization (a taboo in the crypto world), especially given the rules around governance and token distribution that some investors and analysts have described as opaque. Cryptocurrency research firm White Rabbit found that 85.8% of the initial token supply was mined by a small group of miners connected to each other and affiliated with the TON Foundation. Campo said: luck The relationship between Telegram and TON is still unclear, including how much of the token Telegram owns.
Durov subsequently announced plans to limit Telegram’s TON holdings to roughly 10% of the total supply in order to support a “decentralized ecosystem,” with the excess holdings to be sold to long-term investors subject to a lockup.
One cryptocurrency VC said, luck Two investors, who spoke on condition of anonymity to discuss their investment plans, said they decided not to invest in TON due to concerns about transparency and regulation. “It’s not easily accessible and you can’t review all the information,” they said.
That didn't stop other investors. While TON didn't serve as a direct proxy for investing in Telegram, it was the next best thing. And especially as Telegram began integrating cryptocurrencies into its platform, TON became an attractive bet for investors looking to find blockchain applications used by real people. After Telegram announced a TON-paid ad network earlier this year, its market cap soared to more than $25 billion, further fueled by the success of TON-powered mini-games offered on Telegram. Hamster Combat.
“You can think of Telegram as a giant bootstrap for the TON ecosystem,” said Yat Siu, chairman of cryptocurrency giant Animoca Brands, which also runs TON’s largest validator.
TON was also valuable to Telegram: its success meant the rebel platform could implement payments without relying on fiat currency and, more importantly, potentially tap into revenue streams that don't require bringing in outside investors. “I think it would be very hard for Telegram to become a public company and live up to the expectations of TON. [Durov’s] “The visions are different,” Felix says. “I don't know if they're mutually exclusive, but you're going to have to choose one.”
Matthew Graham, founder and CEO of venture capital firm Rise Labs, said the challenges Telegram would face if it were to go public were one of the reasons he invested in TON. “We've talked about it a lot internally,” he said. luck“How realistic is it for them to actually do an IPO, and how much are they thinking about it? [TON] As a path to monetization.”
There are obvious risks when a CEO builds a company around himself and maintains tight control. Telegram has only about 60 core employees, a surprisingly small number for a social media platform that boasts nearly 1 billion users, according to former employee Campo. “Everything goes through this person. It's a tyranny,” Graham said.
The dust has not yet settled over Durov’s arrest, and it is still unclear what charges he will face, if any. One metric to gauge the impact of his detention on Telegram is the price of TON, which fell by 25% on Sunday, resulting in a loss of $3 billion.
Investors are still reeling from the fallout. “The history of blockchains like Bitcoin, Ethereum, and TON has long been marked by bans and threats of bans, but that hasn't stopped the industry,” Kingsway Capital wrote in an investor letter. “TON is also able to operate completely independently from Telegram.”
But while TON’s future prospects are a thriving ecosystem outside of Telegram, for now at least it is dependent on it. Depending on the allegations, Durov could be forced to tighten content moderation and know-your-customer policies within Telegram, a costly proposition that could mean the end of the company’s cryptocurrency experiment.
Campo said Durov never implemented a succession plan during his time at Telegram: “Nobody really knows how to solve it. [moderation] “On a large scale,” he said, “Telegram will have to change and move beyond this group of 60 hackers.”