Telegram Open Network pulls the plug on testnet, in final blow to doomed project

If you were in any doubt that the Telegram Open Network is dead and buried, here’s the final nail in the coffin: the company plans to discontinue support for the testnet by August 1.

In a July 6 update, the development group driving TON wrote: “Our remaining validators will be switched off not later than 1.08.2020. Please save all relevant data and terminate your testing process.”

Those who want to continue testing beyond this deadline have an opportunity to install their own testnet validators.

The grim milestone marks the end of a sorry journey for TON, almost a year after the testnet first launched. The blockchain was meant to go live on October 31 last year, but a series of court decisions gave Telegram little choice but to abandon the project.

What went wrong

TON’s demise practically happened in slow motion—and it all stems back to October 2019, when the U.S. Securities and Exchange Commission filed a lawsuit against Telegram, the encrypted messaging service behind the blockchain. The regulator took particular issue with how $1.7 billion in gram tokens had been sold to investors—roughly a quarter of this in the U.S.—in what the SEC characterized as an illegal securities sale.

By pre-selling grams to those 175 wealthy investors who would only resell them once TON was up and running. At that time, Telegram’s legal theory went, they would be utility tokens outside the SEC’s purview and free from the U.S.’s strict and costly securities regulations for a public offering. The technique, known as a Simple Agreement for Future Tokens (SAFT), drew the ire of the SEC. 

Telegram put up a fight as the legal proceedings got underway. In January, the SEC said it was “deeply troubled” by how the company had refused to turn over even the most basic deposit and withdrawal bank statements that showed how this capital was spent.

Come February, it seemed Telegram was adamant to shrug off its legal woes and push ahead with TON regardless—releasing a whitepaper for the blockchain that made it seem like the company was thumbing its nose at the financial watchdog.

But then the courts started to flex their muscles. In a ruling that would ultimately serve as a fatal blow for TON in the long run, a New York judge ruled that the small number of high net worth investors who purchased Gram tokens should not be allowed to sell them to the general public worldwide. With the blockchain’s launch already delayed, the company was coming under considerable pressure, and the worst was yet to come.

As reported by Modern Consensus, May saw Telegram CEO Pavel Durov effectively bet the house in his fight to stop the SEC derailing TON once and for all. He put his stake in the messaging app on the table—telling investors he would reimburse 110% of their investment with his own money if they keep backing the Gram token for another year. They were also given the opportunity to cash out now and get 72 cents on the dollar. U.S. investors were only given the latter choice. 

But less than two weeks later, it was all over for TON. Durov announced that Telegram’s active involvement with the blockchain was over—and he took the time to lambast the judge who stopped the project from going ahead. Particularly furious at how a New York court made a ruling that would take effect worldwide, he wrote: “This court decision implies that other countries don’t have the sovereignty to decide what is good and what is bad for their own citizens. If the U.S. suddenly decided to ban coffee and demanded coffee shops in Italy be closed because some American might come there—we doubt anyone would agree.”

The final act of the story came in late June, when Telegram and the SEC reached a settlement that would see the company pay an $18.5 million fine, and return $1.2 billion to investors—about 70% of the total funds raised.

Nine months of legal drama, and barely anything to show for it. As the well-known cryptocurrency lawyer Stephen Palley told Modern Consensus: “This is what happens when you push against a regulator thinking money and lawyers will buy your way out.”

A rebirth?

Durov has made it perfectly clear that Telegram, its fingers burnt, has no plans to pursue a blockchain project again. The quest for decentralization will now need to be picked up by the next generation of entrepreneurs, he said. But this doesn’t necessarily mean that what TON was trying to achieve has fallen by the wayside.

TON Labs, which had helped Telegram operate its doomed testnet, launched its own version of the blockchain back in May. Known as “Free TON,” the developers behind this initiative said they had lost patience with the endless red tape that the company was facing. In a group call about the initiative, the group said: “The network must not be censored, it must go to the world.”

Telegram is not involved in this fork—and as a result, it’s possible that Free TON will struggle to gain a meaningful footprint among the payment  app’s 400 million monthly active users. And it was only access to these users that made TON worth $1.7 billion in the first place.