Telegram ICO Investment Memo (TON)

Should I invest?

By Percy Venegas

Some very smart people have been producing great analysis on the upcoming “Telegram Open Network” (TON) ICO. In this piece we rather focus on Telegram (the business), and approach it from a behavioral finance perspective: it is beneficial to understand the company and its users, before making an ICO investment decision. We also provide a risk perspective that should inform decision makers to better balance their position, and avoid the pitfalls from the extreme optimism that is characteristic of crypto industry commentators.

Executive summary

  • As of Feb 5th 2018, TON is on the way to become the largest ICO in history ($1.2B token sale, expected to be oversubscribed).
  • Telegram faces competition in a multidimensional field: from other mass market messaging apps, from privacy-focused chat apps, from token-based communications apps, from developer groups and devOps chats, from local messaging/payments players that dominate their home markets, and even from blockchain platforms (e.g. Ethereum-based messaging Dapps).
  • There is a divergence between the public perception of Telegram as a secure communications platform, and expert opinion — in part because of the inability to fully audit the encryption implementation.
  • Despite its popularity among crypto enthusiasts, there is not always a linear correlation between Telegram group size and the ability of a team to attract prospects.
  • The innovations proposed in the whitepaper are “implementation innovations”, not truly new ideas or even proven to be feasible. They create both an opportunity and a risk for the completion of the development roadmap.
  • The wide adoption of the Grams token as a means of private payments, and, the continual growth of the Telegram user base itself, depends on many externalities arising from regulation (governments), self-regulation (crypto development teams and group administrators), and, third party distribution channels (app stores).
  • The investment approach for retail, family offices, and institutionals, has to be adapted to the risk tolerance of each segment. Multi-family offices may have an advantage, since they have a bankroll and are less concerned with short-term compliance (with regulators in flexible jurisdictions) and long-term reputational risks (in mainstream media).

Demand economics

Mobile app users

For a tokenized messaging app to succeed, it is helpful that prospect users are familiar with in-app payments. iPhone users tend to have both higher disposable incomes, and familiarity with services such as Apple Pay. We looked at the rankings and change in growth in the Social Networking category of the Apple Store, in the period from January 2018 to February 2018. We found that Telegram is in the top 25 position in 122 countries, and the recent change in visibility has been positive in the majority of those countries.

Telegram’s iPhone app ranking, as of Feb 3rd 2018

Web users (including Desktop)

Telegram’s popularity among crypto enthusiasts makes it relevant that the behavior of desktop users is included in the analysis — traders, miners, and gamers spend most of the day in front of their desktops.

In this case, we do not analyze prospect users, but rather, active users — and specifically, those who are visiting specific Telegram channels via the web interface. We look at a sample from the aggregated visits from all channels during 2017 (the sample size amounts to over 163.3 Million).

In 2017, 23% of the active users visited Telegram channels they already knew, this is a strong indication of utility. By year’s end, it has grown six-fold.

33% of the total visits in 2017 came from recommendations from friends and trusted brands, in social networks. This speaks by the “virality” of Telegram’s content.

The largest share of visits (37.7%) comes from new sites and other services, including crypto-specialized websites. This source is less seasonal or event-driven and shows a sustained growth across the year. This is important for investors because is an assurance of free publicity from the media, and also, a demonstration of utility from the communities that likely organize channels and promote others in their niche. Some of those sites are central to the crypto economy, including Bitcointalk, a forum, and Coinmarketcap, a price tracking service.

Search engines queries are also organic in nature, a low-cost acquisition option that demonstrates the trend in increased popularity while being largely free from noise.

Promotional activity is event-driven in nature, this includes email and advertisement campaigns that promote specific channels. The spike in the circulation of ads in November may suggest that operational teams find a material economic benefit in driving traffic not only to the main websites of their projects but to the group chats and communities that support them. In particular, pay-per-click ads secured the highest time on site per visit, and therefore, quite possibly the highest return on investment.

Finally, the demographics of the web version of Telegram are highly aligned with crypto at large: 74% are male, and 62% are under 35 years old. Over 25% of them are strongly interested or involved in technology start-ups and similar business activities, including crypto. On average, for the year of 2017, there were over 42 Million unique visitors, 18% of them accessed the application from desktop computers — this can be considered the professional segment.

Telegram and Bitcoin

If it is true that the growth in Telegram is linked to the fortune of bitcoin and the crypto market in general, then the price trend of BTC and the trend of aggregated usage of Telegram channels must be sufficiently correlated — and there should be a causality relationship between BTC price and Telegram usage.

First, we need to remember that BTC price signals have a seasonal, trend and noise components. For our analysis, we take only the trend component, which more accurately describes market adoption, and it is more likely to influence public perception in the long run — and in turn, when rising will push for a wider adoption of Telegram as a medium of communication in the crypto economy.

As for Telegram, we have both the mobile web and the desktop signal; we use the desktop signal for analysis, since it is more likely to be free of noise, and also depicts the long-term dynamics in real work settings. In this case, we choose total pageviews, as those are likely to capture as well some transient peaks in popularity — e.g. days of important news that have long-term effects. The normalized values are shown below (X is BTC price, Y is Telegram usage).

Applying a causality test we find that in fact it is possible to use BTC price movements to predict changes in Telegram use.

X = a + b*delay(Y, 72)

Competitive positioning

To assess popularity among the general public, we look at the rankings of Telegram’s competitors in the Communications category of the Android store. We find that currently, Telegram has a very dominant position in terms of visibility in Eurasian countries (Russia, Ukraine, and several former Soviet states) and others where there is low trust in government, such as Venezuela. In the United States Telegram ranks in average in the 19th position, while competitors WhatsApp and Facebook Messenger rank 2nd and 1st respectively. Investors will notice the absence of visibility in China: this is because local applications QQ and Wechat dominate this market. In general, Telegram ranks Top 10 or better in more than 50 countries, including large markets such as Canada, Germany, Brazil, Australia, South Africa, Italy and Turkey; emerging economies such as Nigeria, Ghana, Kenya and Colombia; important technology clusters such as Singapore, Ireland and Israel; and crypto neural centers such as Hong Kong and Switzerland.

Top 5 country rankings in Google Play, as of Feb 2nd 2018

Competitive advantage

Secure messaging

Telegram has carved a niche in the secure messaging market. We measured expressed need by the searches that US users made within Google Play, and found that,

  • Telegram ranks in the top 10 for “secure messaging apps”, “secure chat” and “textsecure”. The other 4 competitors analyzed ranked 30 to 100.
  • Only Telegram ranked for specialized security terms, such as “rsa secure id” and “rsa secure”
  • Telegram has a 100% market share for “ voip secure”.

To be sure, there are other secure messaging apps catering to experts (e.g. Signal), but those are very specialized and not oriented to a mass market — therefore unlikely to succeed on implementing a token-based model of this scale.

The centrality of Telegram in the crypto economy

One of the central pitches that the TON whitepaper tries to make is that Telegram has a higher share of crypto economy communities that alternatives Slack and Discord. While this might be accurate, it is important to understand that the sheer number of members is not a guarantee of success for the associated projects, and if Telegram is looking to monetize transactions, engaged active users matter.

To illustrate this point we use web stats for the whole month of Jan 2018, and group user count for the 50 top gainers as of Feb 5th; group count provided as a courtesy of ICOWhitelists by Alex Svanevik.

The scatterplot shows that for large-scale projects, there’s no direct relationship between Telegram group members count and web visits by users who are aware of the project (not being referred by any other source). The number of visitors with low engagement (high bounce rate) is also relevant.

An analysis of variance (predictive strength 88%) demonstrates that the very top performers (groups with unusually high member count) should have a bounce rate of 64% or lower. The problem is that many projects do not achieve this (in our sample of 50 projects, 20% don’t).


To better understand the potential of the TON issue, it is convenient to look at Kik’s own KIN token. lists KIN as a Market cap of $172,033,366, and a Total ROI of 209.48% since the token started trading.

However, it is important to understand that while Kik is a messaging platform with its own token, the token itself was issued in the Ethereum network, while TON will be its own blockchain platform. The target markets are also different: Kik user base is highly concentrated in North America (the company is based in Canada), and its focus is not really the crypto enthusiasts niche.

Risk factors


As a recent article by The Economist discusses, some of the technical innovations proposed by the Telegram team remain a challenge: Infinite Sharding, Instant Hypercube Routing, and possibly, 2-D Distributed Ledgers. This introduces above-average risks to the project when compared with other issuances that utilize more mature technology. This, of course, has an impact on the risk/reward profile: if Telegram is successful, they will be ahead of the pack.

Regulatory pressures

To operate in some markets Telegram has to bow to regulatory pressures; for instance, in Indonesia (a 260 Million population) they had to agree to allow for a form of content moderation. This weakens one of the main product features, privacy, but the team may see it as the only way to be competitive as AML/KYC/taxation pressure mounts.

An additional layer of complexity might play a role once the payments feature is enabled, and possible compliance with local money service business (MSB) regulations have to be factored in.

The very nature of Telegram groups has on occasion prompted to self-regulation by the companies operating channels, as in the case of Team Koinex that had to shut down their popular channel when supervision became an overwhelming burden. An incentivized token-based platform can offer alternatives to cope with this challenges if either the Telegram team or their community of bot developers work on the problem (e.g. misconduct can be disincentivized via monetary means).

Distribution channels

Telegram has been temporarily removed from the Apple Store in the past; as per Telegram’s founder own admission this accounts for a 100K downloads lost in a day (Apple Store download volume is a 1/5th of Android’s). Even if the TON platform is proposing anti-censorship features such as the TON Proxy (a distributed VPN implementation, and TOR-like services), growth could be hampered if access to the software installation is limited.

Investment strategy

Reportedly the ICO is oversubscribed, as Yannick Roux from TokenEconomy and others have noted; if that is the case, the chance to invest for value might be over for most investors — at least temporarily. In any case, here are some important considerations for different investor segments.

Retail investors

By default the whole Telegram userbase (170 Million at the time of writing) can become a stakeholder in the system — the Grams cryptocurrency is planned to be the medium of payment, and the asset itself is a proof-of-stake token.

Family offices

Advisors and family offices can benefit from offering exposure to an investment opportunity on a service that is already familiar to some of their HNWI clients.


Deep due diligence is a must for institutions. As Bloomberg View reports, there are open questions about the true nature of the ties (if any) between the Telegram founders (also creators of the VK social network, the largest in Russia) and the Kremlin intelligence services. On an age of congressional and public scrutiny about the role of social networks and election meddling (and a potential re-consideration of the social contract between users and those platforms), the last thing that institutional investors want is to be associated with potential bad actors. Even if everything is clear, enhanced due diligence is still needed to ensure proper compliance with sanctions list regulations and SEC guidance.

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Information provided for educational purposes only, should not be construed as financial or legal advice.

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