Almost a year ago, the news spread worldwide that a U.S. court had banned the blockchain platform TON by Pavel Durov. The project included the creation of its own cryptocurrency Gram, which was supposed to compete with bitcoin. Still, it had to be stopped because Gram was not allowed in the United States and, therefore, in the world because U.S. residents would find a way to use the technology.
Hey everybody, this is Alex. I followed this project from the very first news about it; I was interested in its development. Therefore, its closure was a very close event for me. So what is it, you ask? Let’s find out together how it all started and what claims the U.S. authorities had about this project.
TON Project Definition
The TON project was designed to share the principles of decentralization pioneered by Bitcoin and Ethereum, but far surpassing those technologies in speed and scalability. Durov intended to put a new generation of cryptocurrency, Gram, into circulation and create an entire ecosystem around it and the Telegram messenger.
It would live independently of any country’s authorities: the Telegram Open Network (TON). The project was scheduled to launch in October 2019.
The new cryptocurrency was not entirely decentralized. It was supposed to create something like a central bank of the system (TON Foundation) to keep some part of all issued cryptocurrencies and regulate their rate, if necessary. This rate would also be primarily determined by the overall success of the ecosystem created around the project.
At the start of the project, the Grams were supposed to be sold to the public at $3.62, with a subsequent gradual increase in price. The company raised about $1.7 billion in two closed preliminary rounds of offerings. In May 2018, it became known that Telegram executives would refuse a public offering of tokens, limiting themselves to funding from private investors.
What the U.S. Law Says
The critical question of the case is whether the cryptocurrency units in question (Grams) are securities subject to regulation under the relevant U.S. law. In the U.S., the concept of security is not defined by any formal attributes, such as the existence of an issuer’s decision to issue securities.
Securities are any investment instruments that allow the investor to invest in an enterprise where the investor himself does not personally participate. If securities (whether stocks, bonds, or investment contracts) are offered to the general public, the issue is subject to statutory registration.
The registration process is extremely complicated and requires detailed information about the project, its principals, the risks involved, etc. Classic cryptocurrencies like bitcoin or ether are not investment vehicles for these projects. They are only a means of payment, used by the agreement of the buyer and the seller of any commodity. As such, such cryptocurrencies can hardly be recognized as securities.
On the other hand, some types of tokens issued along with ordinary cryptocurrencies are given precisely to attract investment in the issuer’s business and may provide the right to a share of the project’s assets or profits. Such cryptocurrencies are undoubtedly securities in the sense of U.S. law.
What Has Happened to TON Project?
Many of the potential investors were Americans or American corporations. The investment was not from the general public but a relatively small group of qualified investors. Under American law, such a private offer, unlike a public request, does not require complete registration but only the submission to the regulator of a short form notifying of the offer made.
Ordinary purchase and sale agreements for the future Gram cryptocurrency were signed with investors. At the first stage of attracting investments, the Grams were sold for 38 cents, at the second – for $1.33. A total of 2.9 billion Grams were sold, 58% of the entire cryptocurrency to be issued.
A lot of cryptocurrencies had already been promised to investors, who gave money to develop the project. But that is precisely what the U.S. regulator (S.E.C.) did not like, followed by the U.S. court. They concluded that these crypto-coins should be considered securities under U.S. law because they are issued in exchange for investment.
Therefore, distributing coins to the general public without following certain (very burdensome) bureaucratic procedures is unacceptable.
On May 12, 2020, shortly after the publication of the U.S. court’s reasoned decision, Durov announced the closure of the TON project. Durov believes that following a similar logic; securities should have been recognized, for example, as gold bullion mined in a mine, the money for the development of which was given by investors who receive their investment income in gold.
In Conclusion
Unfortunately, stories of cryptocurrencies disappearing and cryptocurrency exchanges closing are known to the market, although the Gram story is an uncommon case. To understand the processes in cryptocurrencies and blockchain, you have to study a lot of material daily. After all, this world is volatile.
Our project, Artex Global, will help you to cope with it. Every week, we publish materials that may be useful for you, for example, Shapeshift cryptocurrency exchange or Yobit cryptocurrency exchange.
I have been studying cryptocurrency for over 5 years. I have accounts in every exchange and I test everything on myself.
I want this market to be more understandable for everyone.