TON: Overrated project or the FUTURE of crypto market?Hello! This is the third article in a fundamental project analysis (check the first one about Aptos and the second about Solana ). In this idea, we will analyze one of the most controversial projects of the last 2-3 months - TON. The main goal of this article is to show you the project from various perspectives, to provide all information about the project and our estimation of that information, and in conclusion we'll tell you our opinion on what to do with the project and how you can earn from it. In some way, this article will be beneficial to both experienced traders and newcomers to the market. Please leave your comments after reading it and subscribe to our other resources; we want to know what you think!
The project and its token
The Open Network successor to Telegram Open Network - native token TON successor to Gram.
What is the project?
TON is Layer one blockchain.
Working on The Open Network's (hereinafter TON) predecessor, Telegram Open Network (hereinafter Gram), began in 2018. Gram raised $1.7 billion in private sales to investors in April 2018, but fundraising did not stop there. Gram crashed as a result of the decision to hold an ICO under US jurisdiction, after which the Securities and Exchange Commission (SEC) recognized Gram as a security and declared all previous sales of Gram to investors to be illegal securities distributions. Litigation ensued between the SEC and Telegram, and the SEC won. Consequently, Telegram halted Gram development and began returning funds to investors who had decided to exit the project. The TON project was already well underway, with a team of developers and active users. Many of those who were excited about Gram joined the TON team.
PRODUCT PART
Key mechanics:
Proof of Stake consensus algorithm – network security is dependent on validators checking blocks and delegates trusting their tokens to validators to increase network security
Sharding – blockchain speed, scalability and higher throughput
TON Proxy – access to the TON blockchain via a decentralized VPN and TOR-like network. Increased decentralization and accessibility.
TON DNS – domain names similar to ENS on Ethereum, but TON has integrated their application thanks to Telegram support.
STRENGTHS:
TON's product strengths are not based on a technical stack; in 2022, sharding was implemented and is being implemented in blockchains. Claimed blockchain TPSs are breaking all records, and scalability is one of the key issues that all teams are working on.
TON's strengths are primarily in the user sector, where they are working to improve user experience and acceptance of TON. This is definitely a good thing, or it would be a good thing if Telegram didn't lose the trial in 2020, or it would be even better if there was no trial and the ICO took place in any other jurisdiction. TON, or Gram in that case, would already be among the top ten projects in terms of capitalization, dictating trends in the industry.
WEAKNESSES:
TON is not a self-sufficient project ; its entire success is dependent on a single narrative, Telegram integration. Without Telegram's support, TON as a project would have lagged behind the first hundred projects in terms of capitalization, and it would have been remembered as, yes, it was a solid idea, but these guys lacked originality.
To use an analogy, imagine Aptos coming out not with the idea, scalability, a new approach to the role of L1 blockchains, and its unique concepts, but as a project that might one day be integrated into Facebook or Instagram. And Zuckerberg was tweeting about his plans to incorporate Aptos DEX into his apps. Of course, everyone would shout LFG and To the Moon for the APT token, but the project would no longer be unique; we would no longer be able to appreciate Aptos as a project, but rather as a third-party add-on to social networks.
That is exactly what TON is; the project itself did not introduce any new ideas; it is simply a project that will most likely be fully integrated with Telegram at some point. TON is not a bad standalone project, but it is far from the best. The uniqueness and added value of TON tokens are solely dependent on Pavel Durov's will and integration solutions.
If any reader disagrees with these assertions, consider what TON has brought to the table as a unique project that we have not seen before.
Let's look at some examples:
1. Ethereum created the first and most stable DeFi ecosystem on the market, and advanced concepts and ideas (DAO, DeFi, NFT, SBT, Sharding, ENS, L2 solutions) were conceived and implemented within Ethereum.
2. Solana is a one-of-a-kind project with one-of-a-kind concepts such as no mem-pool and combining validation and consensus algorithms to increase TPS. On the product side, Solana has enabled users to earn dozens of times on DeFi and NFT, and the ecosystem has spawned some of the most well-known DAOs and projects.
3. Near is still considered one of the most technologically advanced blockchains, with a decently integrated EVM-like network for asset migration. Yes, there were marketing gaffes, and the network did not receive the attention it deserved. However, there was an attempt, as well as a narrative within the ecosystem.
What exactly did TON provide as an individual project??
BUSINESS PART
How does the product make money?
Any L1 solution has 4 basic ways to make money:
1. Selling native tokens representing the team's portion of the total number of tokens.
2. Selling their infrastructure for commercial use by other projects.
3. Investing in other projects.
4. Attracting investment – while we do not consider this a full-fledged way to make money, it does provide funds for operational and strategic actions.
Lets analyze each and try to figure out how TON will make a profit:
1. Selling tokens is a well-established practice; everyone sells a certain percentage of tokens, and that percentage is primarily determined by the team's intentions for the product. If the team views its project as long-term, and things are going well within the project, a small portion of tokens are typically sold, or no tokens are sold at all. If you have funds for development, it is far more profitable to accumulate native tokens rather than sell them to the market, especially if the market is in a slump.
2. Selling their infrastructure – rarely can any project make a good profit on this; typically, buyers are large projects that already generate a profit from their operations. These parameters are well met by projects on large and active blockchains, such as Ethereum. TON lacks critical mass; the ecosystem currently lacks the required number of users and full-fledged businesses.
3. Investments are typically venture capital investments in the most promising projects within the ecosystem or in projects outside the ecosystem that can benefit your ecosystem. The average investment horizon is 3-5 years; such activity does not provide money immediately, as good investors will not drain the tokens of the project in which they have invested. The token's price is the most effective marketing tool. In the long run, it could be a good source of income for TON, but not right now. Furthermore, there are no such promising projects within TON; the ecosystem is still in its early stages, and the best projects for investment will emerge later, namely after the ecosystem's initial establishment and consolidation.
4. Attracting investment – everything is ambiguous here; we don't know who these people and companies are who are investing in TON, so this section is based on hypotheses and assumptions. Only one thing is certain: TON has money, or they would have to provide all marketing and project development for native TON tokens. According to one version, after the project's closure, some of Gram's private investors decided to invest their money in TON. There is also speculation that Telegram invested funds in its subsidiary project. Throughout the existence of TON, there was no public information about sums and investment rounds raised, we know nothing about splits and vesting periods of early investors, in fact, we know almost nothing. We only assume that at some point TON had enough funds to develop the project.
Okay, we've sorted through all four TON earning opportunities; the most important at this point in the project's development is selling tokens and attracting investments. Considering all non-transparency, until the policy on informing collection of new rounds is changed in TON will be invested by individuals and angels, funds, particularly those within the jurisdiction of the United States, hardly decide to invest their funds, many of them did not do it during Gram's flourishing, so after all litigations between Telegram and SEC crypto institutes will most likely decide to reinsure. This severely restricts TON's ability to attract investment.
We can't say how much influence investors can have on the price because we don't know the webcasts and splits, investor shares, and other key nuances of tokenomics. If we assume that the TON investor is only interested in making a profit, we already have two large groups of sellers: the project team and its investors. Keep in mind that there are groups of advisors and validators within the project who also receive native tokens and must lock in profits.
Team
We know nothing about the current TON team; previously, the key people at Gram were Pavel Durov and Nikolay Durov. Pavel is likely no longer a member of the team after Telegram officially closed the Gram project. Because of Pavel's dedication to TON, one can assume that his brother Nikolai is a key figure in the TON project. There is no more public information about the team, and there is nothing on which to base a hypothesis.
Funds and investors
All investments were private, and no information about the individuals or total amounts invested in the TON project is publicly available
Tokenomics
Current number of tokens: 5 billion TON
Number of tokens in circulation: 1.2 billion TON
Market capitalization: ~3 bln.
Total market capitalization: $12.2 billion
The token employs an issuance model based on the underlying inflation rate, the higher the price - the higher the rate, the higher the rate - the higher the issuance
The annual inflation rate is currently 0.6%
The target annual inflation rate indicated in the TON whitepaper is 2%
If the issue is proportional to the inflation rate, we will have at least 25 million new TON tokens per year at the current rate of 0.6%, and when the target rate of 2% is reached, we will have 100 million tokens per year. It should also be noted that issuance is typically based on the number of tokens issued, and the more tokens we have in the market, the higher the issuance will be in absolute numbers.
It should also be noted that validators will receive 20% of the token distribution. A common misconception is that validators have no operating expenses. There are, of course, lower costs than for Proof of Work miners, but don't think that with the PoS algorithm, validators can't sell tokens because there are no transaction costs. There are those costs, and it also makes sense for validators to take a portion of the profits, resulting in structural supply.
Another piece of bad news is that the token burning mechanism is not mentioned. Without the combustion mechanism, the number of tokens gradually increases, and the greater the number, the greater the total supply; keep in mind that for the price of a token to rise, demand must be greater than supply. Without burning native tokens, the supply will exceed the demand, and this oversupply will only grow. TON token demand is currently seen as demand from Telegram users, and it is limited by Telegram's ability to enter new markets and attract new users. The supply of TON tokens is only limited by issuance, and the greater the demand for TON, the higher the issuance, and thus the sooner the supply exceeds demand.
All of this is on top of a lack of transparency about investors, vesting and unlocking tokens, information about the team, and the fact that TON is essentially not an independent project but a Telegram add-on.
There are also a number of structural supply and demand issues. For example, it is not enough to create initial demand; you must also maintain that demand. If everyone who wanted to buy TON tokens and demand drops, TON and Telegram should think of something to encourage users to buy a second round, otherwise the price will begin to fall and all those who said to the moon and LFG will sell, causing a cascade of liquidation of futures buyers and forced sales, resulting in a price collapse.
CONCLUSION
What to expect in the future?
TON should be approached from two perspectives: the product and the speculative investment.
From a product standpoint, TON is likely to be a success and mass adoption thanks to Telegram's support. The likelihood of this success is dependent on whether various governments will not interfere with Telegram as a result of TON integration, and if they do, whether Telegram and TON are prepared to fight back in court. If the authorities in some countries impose a mandatory block on the use of Telegram, TON's position may be jeopardized. If Telegram and TON are again defeated in court by regulators, the situation may change. If Telegram and TON can complete all of their tasks without incident, TON as a project and asset will be widely accepted, at least within the Telegram ecosystem.
From a speculative and investment standpoint, the uncertainty is even greater; the project has numerous flaws that must be addressed, and we do not know the motivation of the key stakeholders. If the integration is successful, TON will most likely be able to reach a new ATH in price, make x2-3 to the current value, and enter the top 10 projects in terms of capitalization. If the market enters a growth cycle, TON will be one of the most expensive tokens on the market for the next cycle.
If TON integration fails, it will be a total failure, and the price of TON will fall by -60-70%.
If we consider a neutral scenario in which the integration was successful but TON use within Telegram is not available in some countries, the price of TON will still break the ATH in the short term, and everything will depend on the team.
OUR OUTPUT: LONG OR SHORT
It all depends on the investment horizon and the ability to wait; in the short term, this appears to be easy money, but in the long term, the risks will be higher, as will the possibility of a black swan product or market.
A long or short in the short term is essentially a bet on whether Pavel Durov can carry out all of his plans, whether he is prepared for regulatory claims, and whether he has reached conclusions after 2020.
Long or short, whether the project team can maintain the product, introduce unique mechanics and narratives to maintain the ecosystem, and whether the team has a plan to eliminate weaknesses is your bet in the long run. It's also a bet on investors' desire to lock in as much revenue as possible, as well as their project valuation.
We see a picture in which the short term is long before the breakthrough of the new ATH, then you look at the market, and the long term is short after the breakdown of ATH, but you must consider how the product develops and what market. People do not see the weaknesses and vulnerabilities during the bull market because of the euphoria, but after the bull market ends, you can profit from these weaknesses.
OUR FINAL WORD
Always keep in mind that, in addition to your basic strategy, everything depends on your risk tolerance, ability to wait, and your fundamental principles and beliefs. We publish our opinions and assessments of various projects, what the prospects may be, and how those prospects provide opportunities for everyone.
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