TON’s rebirth
The Inception Capital team has been closely monitoring The Open Network (TON). Last October, we published a comprehensive report on TON, where we answered a number of questions, including:
- What is TON and how is it related to Telegram?
- How does the TON blockchain work and how does it compare to other blockchains?
- What are the connections between Telegram, TON, and the TON foundation?
- What does the TON ecosystem look like and what is its growth potential?
- What are the supply and demand drivers behind the TON token?
- How do TON-native apps compare to other crypto-integrated Telegram bots?
- What areas are ripe for investment?
Since then, TON has gained significant momentum, ascending to become the 9th largest crypto project with a circulating market cap (MC) of ~$23 billion and a fully diluted valuation (FDV) of $33.5 billion. On top of that, Pantera recently announced their “largest investment ever” in TON.
Given all the rising momentum this year, we decided to compile this update. Here, we will focus on:
- Data refresh: A fresh look at important data points from our last analysis to understand TON’s growth trajectory.
- Chain comparisons: Analyzing how TON activity stacks up against other major blockchains.
- Ecosystem updates: Discussing recent developments within the TON ecosystem fueling the momentum.
- Investment thesis: Reviewing our initial investment thesis with updates on the current landscape.
TON: A community integrating blockchain technology
Telegram (TG) has seen massive growth in monthly active users (MAUs) since its inception. Within months after launching in August 2013, TG reached 34 million MAUs, and a decade later that figure is on path to hit a staggering 1 billion.
Over the years, TG has emerged as a crucial hub for the crypto community. Many of the top channels and groups on TG are dedicated to crypto-related content. Nearly every web3 and crypto project leverages TG for communications and marketing (e.g., engaging users, sharing project updates, running promotions, etc.).
TON was created by the Telegram team in 2018, and raised $1.7 billion by selling its native token. However, the token sale was deemed illegal by the US SEC, and as part of a 2020 settlement, Telegram agreed to stop developing TON.
But, TON was already embraced by its community who took over its development. The project was renamed from “Telegram Open Network” to “The Open Network,” and mainnet was launched in mid-2021.
The TON protocol
The TON protocol encompasses not only the TON blockchain, but also to a variety of infrastructure that works in tandem with the blockchain to make the whole ecosystem more versatile and user-friendly:
- TON DNS: This service assigns human-readable names to accounts, smart contract, services, and network nodes, simplifying access to decentralized applications and services by allowing users to use short and simple domain names in plain english instead of long alphanumeric strings. Currently, over 76K TON DNS addresses have already been sold, and sales have been picking up pace this year.
- TON Storage: Since the early 2000s, the world of digital storage transformed from primarily local and offline to global and online (e.g., AWS in 2006). Since then, there hasn’t been a major revolution in storage technology, but the advent of blockchain-enabled decentralized storage protocols could be the next big thing. TON Storage is a decentralized file storage system that uses torrent-like technology and smart contracts to ensure reliability. It aims to provide a means for storing and exchanging large amounts of data without relying on centralized web servers.
- TON Proxy: A network proxy and anonymizer layer designed to enhance online privacy and protect against censorship. TON Proxy is used to create decentralized VPN services and blockchain-based Tor alternatives. With TON Proxy enabled, users can privately and securely interact with TON Sites.
- TON Payments: A platform for instant off-chain micropayments between users, bots, and other services. It leverages payment channels to enable lightning-fast payments and billions of transactions with zero fees. Users only need to commit transactions to the TON Blockchain when opening and closing the payments channel. Currently limited to two-party channels, but the smart contracts have been designed to support a unified multi-party payment channel network.
TON blockchain
At the heart of the protocol infrastructure lies the TON blockchain, a high-throughput blockchain enabled by dynamic sharding that is designed to scale as the network scales (i.e., distributed load via horizontal scaling). To demonstrate its scalability, the TON core dev team held a public performance test on 256 TON validator nodes, hitting a max speed of 104,715 transaction per second (TPS), the fastest TPS ever recorded on a blockchain. Its time-to-finality (TTF) is estimated at ~6 seconds, putting it (theoretically) on par or even slightly faster than Solana.
For more information on how this works, see our initial report on TON here.
That said, under normal circumstances, TON has not yet faced this level of network demand to fully test its stability and security. Currently, TON network demand results in a range of around 30–50 TPS.
However, in December 2023, TON was hit by a massive surge in activity driven by the introduction of Tonano — a Bitcoin Ordinals-inspired protocol — that slowed the blockchain down to just 1 TPS.
While the network was hit by millions of transaction requests within half an hour, driving up network usage 50–100x, TON should have been able to handle it based on the theoretical and public test maximum.
The post mortem concluded that it came down to the existing validators simply running too weak hardware, given that before this event, they had no need to rent or buy expensive hardware to handle the typical load.
On a positive note, activity has been picking up since then, with daily transactions now regularly over an order of magnitude higher than before then.
As well as TON trading volumes:
TON was not the only blockchain to experience an inscriptions-related surge in activity around December 2023. A “gold rush” for inscriptions caused at least half a dozen other alt chains to crack under the pressure around the same time.
Following this, all of these chains saw some degree of increase in activity, which can partly be attributed to a general increase in crypto activity at the turn of the new year and continuing into 2024.
However, TON stands out for its relatively larger growth in activity compared to other chains this year. Recently, daily transactions on TON surpassed both Polygon PoS and BNB Chain.
Why the growth?
Here, we try to pinpoint a handful of major events starting around late 2023 that could explain the growing momentum of TON:
September 2023 (Ton Space): Given the regulatory challenges, Telegram had distanced itself from TON for years, but that all changed in the event that arguably triggered it all: an official announcement jointly by Telegram and the TON Foundation on a new self-custodial wallet called TON Space at Token2049 last year. TON Space complements the existing custodial version of the Telegram Wallet. (It’s worth noting that Telegram is not developing the wallet, but rather its the brainchild of The Open Platform, a group dedicated to building out TON’s wallet and ecosystem.)
February 2024 (Telegram Ad Revenue Share): Looking at activity, the first spike around February corresponded with that Telegram’s cofounder Pavel Durov announced on his official broadcast channel that Telegram would share ad revenue with channel owners. Specifically, he announced that channel owners in nearly a hundred countries will start receiving 50% of any revenue Telegram makes from displaying ads in their channels, all paid and settled on the TON blockchain “to ensure ad payments and withdrawals are fast and secure.”
March 2024 (The Open League): The next drive up in activity in March around the time that the TON Foundation announced “The Open League,” a community rewards initiative to grow the TON ecosystem. Over the course of three months, the TON Foundation will distribute 30 million $TON (worth ~$100 million at the time of announcement and now worth ~$200 million) to various TON users, developers, and projects.
“Approximately $22 million in Toncoin will be used for airdrops and on-chain quests, with $40 million in Toncoin allocated toward boosting liquidity pool rewards for The League’s participating tokens. A further $38 million worth of Toncoin is reserved for incentivizing an upcoming project launch on TON.”
Following a successful pilot in January to February, the Open League officially launched April 1 and has already helped drive a massive growth in TVL within the TON ecosystem, with USD value locked in TON smart contracts nearly doubling since the beginning of April.
April 2024 (USDT and XAUt on TON): Next, Tether announced that it launched USDT and XAUt (their gold-backed stablecoin) natively on the TON network, meaning borderless transactions for all of Telegram’s 900+ million users in these tokens. With stablecoins making up ~97% of all the total on-chain RWA market cap, and USDT accounting for about 70% of stablecoins ($116 of $166 billion total stablecoin supply), that is a lot of new potential liquidity injection into the TON ecosystem.
To kick off the new integration, the TON Wallet team launched a campaign where participants can earn up to 50% APY on USDT deposits — cleverly, to earn these rewards, participants must set up a self-custodial TON Space wallet.
Prior to native USDT on TON, users and TON dapps had to rely on bridged versions of USDT, USDC, and DAI, limiting their liquidity to those bridged versions that carry a higher risk profile. Now, Telegram users (excluding Americans) can simply purchase USDT on their Telegram Wallet to begin sending payments in USD-equivalent (or gold-equivalent) to any Telegram user around the world in just a few clicks and in under a second.
Less than a month after launch, there is over $238 million USDT in circulation on TON, and another $91.5 million minted and ready to be deployed by Tether.
To put that in perspective, that’s over 80% more USDT authorized on TON than NEAR, and more than twofold that authorized on Cosmos.
May 2024: Pantera announces making its “largest investment ever” in TON.
And the events above are not exhaustive. They’re meant to highlight major catalysts on the way up to where we are. For a fuller timeline of TON’s “rebirth,” see the chart below.
The emerging TON ecosystem
Beyond global peer-to-peer (p2p) payments, TON DeFi apps have emerged as a significant use case for the TON blockchain, and we’ve taken notice. This year, TON DeFi has picked up significant momentum, with a notable rise in transaction activity and volumes. Notably, the total value locked (TVL) has surged, positioning it alongside other major high-throughput L1 blockchains such as Sui, Aptos, and NEAR. As of now, TON’s DeFi TVL stands at approximately $620 million.
Who are the main players in TON DeFi?
- Tonstakers ($225M TVL; 43% market share; launched February 2023): Tonstakers is the leading liquid staking protocol on TON, largely due to its integration into TON Space. Users can easily open TON Space through the official Telegram Wallet, then stake TON and receive tsTON in a few taps. tsTON represents their share of the staking pool and can be used in other TON DeFi apps.
- STON.fi ($125M TVL; 24% “”; launched August 2023): The leading AMM DEX on TON. STON.fi powers swaps on both TON Space and Tonkeeper (another leading self-custodial TON wallet).
- bemo ($70M TVL; 13% “”; launched May 2023): Another liquid staking protocol on TON, launched in collaboration with DWF Labs.
- DeDust ($53M TVL; 10% “”; launched November 2022): Another AMM DEX on TON. It was the first TON DEX to allow trading and adding liquidity to any token.
Together, these four apps currently account for ~90% of the total TVL on TON DeFi. Aside from DEXs and liquid staking, there is not yet much TVL on lending, derivatives, or other DeFi categories, but it seems like things are just getting started.
EVAA, launched early this year, is the first and top lending protocol built on TON. In the past two months, TVL on EVAA skyrocketed from under $100,000 to over $12 million, a cool 140x. Earlier this month, EVAA’s TVL surpassed $20 million.
Next, there is Storm Trade, launched late last year, as the first and top derivatives exchange in the TON ecosystem. Users can trade not just crypto, but stocks, forex, and commodities on leverage both on its web app and Telegram. Storm Trade’s TVL also has been rising rapidly over the past two months, increasing from around $300,000 to $12 million (40x).
Notcoin
Most recently, GameFi on TON made an unexpected breakthrough with the viral clicker game Notcoin. This simple yet addictive “tap-to-earn” game, launched as a TON app, quickly became a viral hit. Within a few months of its launch, Bitcoin attracted over 35 million players. Its X account boasts over 1.7 million followers and the Notcoin Community Telegram group is over six million strong. Its token launch this month began trading at an FDV over $1 billion, racking up $294 million in trading volume within the first hour.
Notcoin’s viral success can be attributed to its super simple gameplay (literally tap to earn tokens), strong community engagement, and the effective leveraging of Telegram’s massive user base. Despite (or because of) its simplicity, it has introduced millions to crypto and TON’s ecosystem.
Besides the tapping-to-earn game, there are various other simple and fun features built in, including boosters, quests to earn, squads, referrals, and leaderboards. By integrating into Telegram, there is seamless support for socializing among players, with squads linked to Telegram channels and groups where players can collaborate to grow their pie together.
Initially a simple experiment, Notcoin quickly evolved into one of the best demonstrations of the power of TON’s integration into one of the world’s largest messaging apps. It sets a new precedent for how future apps can leverage TON and Telegram for mass onboarding and usage.
Notcoin’s success was the right combination of fun and simplicity, arriving at the right time during the ongoing memecoin craze.
Beyond TON apps
There is a distinction that should be made between TON apps and other Telegram apps that integrate other cryptocurrencies.
Just half a year ago when we released our first TON research article, there was a stark difference between TON apps and other Telegram bots integrated with other blockchains.
The typical non-TON bots resembled monotonous proxy pages while TON apps already offered the full-fledged interactivity of a mobile app.
But that is starting to change. For example, HERE Wallet, a new non-custodial wallet for NEAR Protocol, offers a comprehensive interactive experience as a non-TON telegram app comparable to other fully developed mobile wallets. It was launched shortly after the viral success of Notcoin.
Like Notcoin, there are gamified elements like tapping periodically to mine its native token, referrals, boosters, community mining, etc. It too became a viral hit with strong support from NEAR’s cofounder Illia Polosukhin. Within the span of 10 days, over a million Telegram users created wallets using HERE Wallet.
What also makes HERE Wallet stand out is that, unlike the official Telegram Wallet, it Americans can use it. That’s a lot of potential liquidity. (E.g., Kaiko Research estimated that the share of Bitcoin traded during US market hours is as high as 46%; Chainalysis estimated a similar figure on total volumes received by country).
Maybe HERE Wallet is a Notcoin imitator, but it’s a damn good one.
It makes me think that the divide between TON apps and non-TON apps is quickly narrowing to no divide at all. Soon, we will see other blockchains integrating into Telegram to capitalize on the strategic combination of gamification and social that can work so well on crypto’s favorite messaging app.
With its 900+ million strong user base, integrating with Telegram is like a cheat code for crypto projects, especially those that are basically just an idea trying to create a community. Starting from zero is a hard road, but fortunately there are more than enough Telegram users to go around.
With the drastic improvement to non-TON apps, there is now nothing much stopping other non-TON projects from capitalizing on Telegram’s many millions of crypto-hungry users. TON’s main edge is becoming less about the apps themselves, but the potential to integrate into Telegram Wallet, which is directly accessible within any chat unlike non-TON wallets and apps.
For a full list of TON’s current ecosystem, see this ecosystem map and the TON App website.
Parting thoughts and investment ideas
In the world of over 14,000 crypto projects, few could recover from the regulatory and technical challenges that TON has. In particular, TON’s community stands out for taking the helm when the ship was sinking, sailing TON through rough waters to become a top-10 cryptocurrency today.
Now, TON is starting to showcase the immense potential of its integration with Telegram’s vast user base of over 900+ million active users. The surge in activity is attracting fresh attention to the TON ecosystem and its recent developments, creating a virtuous circle and amplifying network effects.
TON stands out in the crowded crypto space for being mobile-first, community-developed, and messaging-integrated on crypto’s favorite messaging app. There really is no other blockchain project that hits all three of these sweet spots together.
The integration of native USDT into the TON ecosystem is especially important. Telegram is one of the best platforms there could be to transfer value around the world to anyone at any time, and TON has positioned itself as the primary means to do this on Telegram.
Despite its nascent ecosystem, growth initiatives and rising activity are promising. The surge in DeFi activity, the viral success of projects like Notcoin, and the significant investment by Pantera are all promising signals.
As we look ahead, I see several investment areas within the TON ecosystem:
- DeFi: It’s worth monitoring the rise of staking, swaps, lending, derivatives, and other DeFi on TON. TVL on these protocols is already rivaling other top blockchain projects like Sui, Aptos, and NEAR. DeFi apps with a Telegram-enabled social+ model would be particularly interesting.
- GameFi: The viral success of Notcoin highlights the potential of GameFi on TON. Especially, GameFi projects that can strike the right combination of simple, fun, and social with good UX on a smartphone. Social+ also important here.
- TON infrastructure: As TON’s ecosystem grows, I expect more interest around its storage, payments, and privacy infrastructure. Innovations here could unlock greater capacities to attract a larger share of Telegram’s user base to onboard into the TON ecosystem, as well as a larger share of crypto’s user base to try TON.
- Cross-chain integrations: TON is still a rather isolated island, but that island is becoming richer and more appealing. I’m keen on seeing more projects building bridges to TON island, connecting it more to the broader blockchain archipelago.
- Non-TON apps: Last year, we signaled investment interest in TON-native apps over non-TON apps given the state of the latter. But, the UX of the latter has changed rather dramatically since then. With the massive success of non-TON apps like Near’s HERE Wallet, I’ll be keeping an eye on new non-TON Telegram apps that leverage Telegram’s user base and mobile-first, social-first nature.
If you’re building in these directions, reach out!
Learn more about Inception Capital at our website & by following us on X @_inceptioncap
Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice, or investment recommendations. This post reflects the current opinions of the authors and does not necessarily reflect the opinions of Inception Capital, its affiliates, or individuals associated with Inception Capital. The opinions reflected herein are subject to change without being updated.
