How the TON fiasco could destroy investor confidence in cryptocurrency
Blockchain

How the TON fiasco could destroy investor confidence in cryptocurrency

By Anton Paulson - 16 Oct 2019

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It is arguable that the recent intervention by the SEC to stop the launch of the Telegram Open Network (TON), and its native GRAM token, was one of the biggest blows for the advancement of cryptocurrency and blockchain technology into the mainstream. Its fiasco could lead to investors losing confidence in cryptocurrencies.

The SEC moved quickly: last week they declared that the record-breaking $1.7 billion ICO was illegal.

The reason why this is a blow for the entire cryptocurrency and blockchain space is that the ICO was marketed to chosen institutional investors only. Telegram looked to massive VC firms, enterprise companies, and investors, and several non-crypto investors to be a part of this project. 

The likes of Benchmark, Sequoia, and Lightspeed were all given assurances that the project, its ICO, and the entire TON Network had passed regulatory muster, and there was nothing to fear. These firms, already made to wait longer than expected, would have finally been rubbing their hands together to see this project launch – but were dealt a hammer blow.

Denting the confidence in cryptocurrencies

There is little doubt that blockchain and cryptocurrencies are making its way into the mainstream – through many different channels. News floods in every day of various enterprises backing blockchain startups, or investing in cryptocurrency projects and exchanges. 

However, underlying these investments, and wading in of traditional firms into the nascent space, is the fear of regulatory uneasiness, untested regulations, as well as even old fashioned scams and hacks. 

One of the bigger examples of regulatory hand brakes that have also been dominating the media is Facebook’s Libra project, which is being halted on all fronts. It is also causing damage to traditional confidence as a number of Libra Association members have jumped ship.

As for TON, the damage may be even greater as Telegram not only made assurances of regulatory soundness, but they have also seemingly covered themselves from reprisal from their investors with a force majeure clause that will no doubt stir the ire of the heavy-hitting investors.

No looking back

It has been reported that, in the purchase agreement for investors in TON, there was a force majeure clause — which encompasses natural disasters, terrorist threats, and the eruption of war. However, this clause also covers legal or regulatory actions on the part of the authorities, such as the SEC’s late intrusion. 

Therefore, it could mean that Telegram may not have to return the money to its investors, even though it pledges to do so if there was a delay in the launch of the blockchain product.

More so, the actual cause for concern from the SEC is being rested at the foot of the institutional investors who are party to the ICO sale. By making the ICO private, Telegram did not come into the view of the SEC; however, the regulators soon came to the understanding that these GRAM tokens won’t stay private for long. 

The SEC noted in its decision that once these private investors get their hands on the GRAM tokens, “they will be able to resell billions of Grams on the open market to the investing public.” This is where it becomes sticky for the SEC, and it is an issue they have with the investors who have now been stung. 

Bad for the cryptocurrency business

No doubt, the word around the institutional investor water cooler will be that there are still massive, unseen dangers in the cryptocurrency space that will scare away other potential investors in the space.

The TON network was supposed to be a big turning point in the adoption of cryptocurrency, but it may have just joined Libra on the scrap-heap, leaving a bitter taste in investors’ mouths. 

 

Anton Paulson
Anton Paulson

Anton has had a long interest in cryptocurrency and blockchain through his love of technology and finance. He has been an avid miner and investor in the past, but now prefers to write about the ecosystem and its fascinating journey.

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