Produced | Odaily (ID: o-daily)
Produced | Odaily (ID: o-daily)
TON (Telegram Open Network), the blockchain project of Telegram, the world's largest encrypted chat software, was also caught off guard by the US SEC (US Securities and Exchange Commission) and pressed the pause button, facing the possibility of returning 1.7 billion US dollars.
To the dismay of followers, there is less than a month left before the launch of the TON mainnet (October 31) at the moment of emergency suspension.
Previously, many unknown projects were punished by US regulators, requiring the return of all "illegal gains". As for well-known projects, BitMEX, the world’s largest futures exchange, and USDT, the most widely circulated stablecoin, have ceased operations in the United States.
EOS, the largest ICO project in history, paid tens of millions of dollars, which is the best ending. The US version of "WeChat" Kik and Facebook's blockchain project Libra are still suffering repeated setbacks under the pressure of US financial regulation.
In the confrontation between cryptocurrency companies and the U.S. regulators, most blockchain projects obediently pay high fines; a few energetic projects choose to embark on the long road of resistance, but it is difficult to reverse the decline; The block chain project simply declares that the project has failed.
All the results prove that supervision is more powerful.
The US SEC’s iron fist action, on the one hand, has found an outlet for rights protection for leeks; on the other hand, for emerging blockchain projects, regulatory uncertainty is still an urgent problem that needs to be resolved. "Half but no result" seems to be a corroboration.
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Telegram's Long Road to Coin Issuance
I believe Internet people are no strangers to Telegram.
In 2013, Russian genius geek Pavel Valerevich Durov founded the "encrypted version of WeChat" Telegram in Germany. Its biggest feature is that it can encrypt the content of the conversation and support the setting of chat records Scheduled destruction, supports one-click deletion of accounts and data.
Durov is famous for his privacy-oriented attitude. He was once blocked by Russia because he strongly refused Russia's request to view the chat content in Telegram. In order to maintain the independence of Telegram, Durov has been supporting Telegram's operation and maintenance costs for a long time.
Because of this, Telegram has become the communication tool of choice for many privacy enthusiasts and the blockchain community. Statistics show that its monthly active users exceeded 200 million in 2018, and its downloads have reached 365 million today.
In 2017, after five years of free operation, Telegram launched the blockchain project TON, and raised US$1.7 billion in one fell swoop that year, becoming a well-known event in the history of blockchain financing at that time.
TON, the full name of Telegram Open Network, aims to establish a blockchain operating system that is comparable to Ethereum. The founder proposed the concept of "fifth-generation blockchain". The blockchain technology used includes multi-chain, PoS and BFT, smart contract support, tight coupling, and sharding, developers can develop various decentralized applications based on TON; in the fourth quarter of this year, TON launched a blockchain wallet. Users participate in the economic system based on virtual currency (Grams). Through the wallet, users can complete various payments, investments, shopping, and even send red envelopes on Telegram.
According to former Telegram employee Anton Rozenberg, TON will help people under government repression to transfer money locally through the messaging app. Although TON's goal is to be a public chain, some investors believe that it is actually an emergency blood transfusion for Telegram. TON's token, Gram, is also seen as a source of funding for the expansion of Telegram, a "community without a business model."
At that time, in order to avoid the supervision of the US SEC, Telegram canceled the ICO for the public, but the enthusiasm for private placement still exceeded expectations. 175 investment institutions injected a total of US$1.7 billion in financing into TON within two months. Participants include well-known investment institutions such as Sequoia Capital and Benchmark. In addition, due to the large number of proxy investors, many individual investors actually participated, and the total number is difficult to count.
Although the fundraising went smoothly, the development of the TON project was not satisfactory.
TON, which was originally planned to be put into use in December last year, has been postponed several times due to serious delays, almost a year later.
The reason why the mainnet release has attracted much attention is not only because of two years of anxious waiting to finally see the light of day; in addition, Telegram’s Gram token purchase agreement shows that if Telegram Open Network (TON) is released on October 31, 2019 If it is not activated before , the purchase agreement for Telegram's Gram tokens will be terminated and the funds raised will be returned to investors.
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The main network is about to go online, and supervision will kill it
Everything was in full swing ahead of the final deadline.
In August this year, the TON Chinese community announced that the core code of TON has been basically completed, and the public beta will officially start on September 1. On Sept. 7, TON announced that it had entered the final stages of preparation before going live, and the code to run the blockchain nodes was released on the testnet portal late Friday. Developers and community members interested in TON can already start using full nodes, validator nodes and blockchain explorers. On September 25th, Telegram officially announced the latest TON programming contest. The task is to build smart contracts for the TON blockchain platform; some trading platforms even announced that they will become one of the first trading platforms to provide TON's native token Gram. Oleg Jelezko, one of TON's main investors, claimed to be "relaxed."
A restraining order issued by the SEC apparently urgently stopped TON, which was speeding up.
On October 11, the SEC announced that it had filed "urgent action and obtained a temporary restraining order" against two offshore entities of Telegram's TON ICO.
The SEC's complaint alleges that Telegram failed to register its offer and sale of Gram tokens (determined as securities) as required by the registration requirements of the Securities Act of 1933; The law requires investors to be provided with information about Gram tokens and Telegram's business operations, financial condition, risk privacy and management.
This ban almost extinguished the last flame of "Telegram currency issuance". The next day, Telegram’s official telegram group TON Board announced the temporary shutdown; TON’s private equity investors have been notified and asked for opinions, asking whether to accept a one-year postponement of the TON token Gram, which means that if Gram agrees to the postponement If there is no more than half, then TON needs to be refunded on October 31.
At the same time, Telegram is trying to settle with the SEC. CNBC host Ran NeuNer tweeted to comment on the matter. If the two reconcile, according to his calculations, Telegram needs to pay the SEC $10.2 million.
Tomer Ravid, CEO of BloxTax, said that the nature of TON may be more serious than EOS, because EOS has almost no other business before the ICO, so there is nothing to disclose. However, Telegram is a long-running technology giant with a wide range of businesses and should disclose more information to the public. In addition, the allegations also mentioned the possibility of Telegram defrauding investors, but not Block.One.
Telegram also responded to the U.S. SEC’s emergency suspension of TON.
In a letter to investors, Telegram said it was surprised and disappointed that the U.S. Securities and Exchange Commission (SEC) chose to file a lawsuit against its token transaction, and claimed that it had been trying to engage with the SEC "over the past 18 months," Seeking feedback on its TON blockchain project.
The SEC said in the lawsuit that it asked Telegram to respond to an administrative subpoena, but it declined to do so. In part because of this refusal, the SEC said it had no choice but to file a lawsuit.
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Those blockchain projects targeted by the US SEC
Telegram is not the first blockchain project targeted by the US SEC.
Since the popularity of ICO in 2017, in the next two years, the US SEC has successively prosecuted dozens of illegal ICO projects.
Looking at the US SEC's prosecution grounds, false publicity and securities registration are the main ones. The former aimed at exaggerated earnings in cryptocurrency projects, fabricating partnerships, concealing the company's financial status, etc.; On the grounds of securities regulations, the blockchain project was declared an illegal ICO project.
Recently, under the influence of Libra, the US SEC has intensified its sniping. According to PANews, in August 2019 alone, the US Securities and Exchange Commission has charged 6 cases, involving ICO project companies, digital asset exchanges, blockchain Technology companies, rating companies, etc.
Facing the US SEC, different companies have different approaches.
Due to the high cost of litigation, withdrawing funds and suspending operation is the choice of most blockchain projects, and it is also the result that the US SEC is more willing to see.
In December last year, Basis, a stablecoin that has received a total of US$133 million in financing from world-renowned traditional venture capital, issued an open letter to the community, announcing that due to regulatory pressure, it has now "decided to return funds to investors" and will also close the Basis project. The letter noted that "our ability to activate Basis has been materially negatively impacted by the failure to apply U.S. securities regulation to the system."
If you do not take the initiative to withdraw funds and stop operations, you will have to pay a fine. At present, the disclosed penalty amount ranges from 260,000 to 24 million U.S. dollars. According to a fine issued by the SEC to EOS parent company Block.one, the fine occupies the ICO 0.58% of the total amount.
There are also luckier ones. In September, the U.S. Securities and Exchange Commission (SEC) accused EOS parent company Block.one of conducting an unregistered initial coin offering (ICO) that raised the equivalent of billions of dollars in about a year.
Since then, Block.one, which is "rich and rich" and has issued coins for a year, announced a settlement with the SEC by paying a civil penalty of $24 million. In addition, Block.one said: "The SEC has also granted Block.one an important exemption, so that Block.one will be exempt from certain existing restrictions that generally apply to such agreements."
Compared with Block.one's mentality of "spending money to eliminate disasters", Kik, which is also a social software currency issuer like Telegram, has a more intense attitude.
Founded in 2009, Canada’s “WeChat” Kik has received investments including Tencent, Union Square Ventures and Spark Capital for attracting 1 million users within two weeks. At the end of 2017, Kik raised $98 million through ICO to support its blockchain project Kin. However, on the third day of Kin's issuance, it received a warning from the SEC: Kik has violated securities laws by selling Kin without obtaining the right to issue securities.
The two had a two-year debate on whether Kin should be defined as a security or a cryptocurrency. In June of this year, the SEC sued Kik, counting Kik's "seven deadly sins". Facing the SEC's allegations, Kik CEO Ted Livingston said, "The SEC has made a high selection of the facts and circumstances of our 2017 token pre-sale and issuance activities. Sexual and seriously misleading description.” Fight against the US SEC again, and launched a $5 million encryption crowdfunding campaign through the special website Defend Crypto, seeking to fight a longer lawsuit with the US SEC.
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From settling accounts after autumn to stifling currency issuance, it is difficult to predict supervision
With Telegram's fate in doubt, all eyes will be on the Oct. 24 hearing.
According to TON’s private funder, the TON team has contacted the private funder and is still considering whether to continue to fight with the SEC or accept a refund.
This investment seems to be coming down to three possibilities: 1. Help TON contact the SEC, and try to get the SEC and TON to properly resolve the dispute; 2. Negotiate with TON and receive a refund of the investment; 3. The worst case is that the SEC does not If you don’t want to settle properly with TON, and TON is not willing to refund, and the cost of filing a lawsuit against TON is also very expensive, then this investment can only be regarded as a sunk cost.
According to market observation, the US SEC seems to have shifted from reckoning with ICOs after the fall to killing them in the cradle. The TON this time is one of the cases where funds were raised but no tokens were issued.
Therefore, some media began to predict who will be the next targeted blockchain project? And concluded: Filecoin and DFinity, projects with a huge amount of financing and no tokens in circulation, are likely to become the next target of the SEC, causing a lot of discussion in the community.
Is regulation scary? Some uncertainty might actually be cleared up if the laws around the cryptocurrency space were clearer.
However, the SEC has been criticized for being slow to provide clarity on cryptocurrencies and ICOs.
Since the SEC's main regulatory scope is securities, some cryptocurrencies claim to be "currency", and it is difficult to reach an agreement between the two.
According to the Chain Law team, the Howey test is currently the main method for judging whether a certain digital asset constitutes an investment contract under the U.S. securities law. However, because the test method is relatively abstract, there are many uncertainties in the actual application.
If regulation is still uncertain, relying on cases to allow blockchain projects to guess regulatory intentions is a sword of Damoris.
Ted Livingston, the founder of Kik, once expressed his stance that he chose not to settle with the SEC from the beginning. He said: "Because we believe that most blockchain teams are small and have limited financial strength, they cannot negotiate with regulators." Effective dialogue will always choose to let things go, which will eventually lead to unclear and uncertain regulatory policies for the cryptocurrency industry. Someone in the encryption industry must stand up and confront regulators head-on.”
Kik hopes to quickly advance the litigation process, meet the SEC in court as soon as possible, and clear the uncertainty of cryptocurrency regulatory policies through legal means, thereby promoting the development of the industry. "Ted Livingston said that it was because of this consideration that he launched the "Defend Cryptocurrency Defend Crypto" campaign, hoping that the encryption industry would support the company's legal battle with the SEC, in the dispute over whether Kik's ICO in 2017 had regulatory risks. Defend your own rights, and hope to expand your goals to support all blockchain companies that face the risk of SEC supervision.
"When we talk to people in the industry, it's always about 'what does the SEC think', and we need to stop living in that fear. We all know that encryption is the next big thing, but we've given ourselves the edge on the global stage. There are fundamental obstacles, and the only way to understand what the SEC thinks is to go to court," Kik CEO Ted Livingston said in an interview.
