Thus far, 2018 has largely been a period of uncertainty regarding the state and future of Initial Coin Offerings. With the US SEC taking an increasingly active role in the regulation of ICOs, and an increasingly controversial perception of this funding method, it is unclear what sort of role ICOs will serve in both the short and long run.
Earlier this week, the Wall Street Journal reported that Telegram had decided to cancel its hotly anticipated ICO. The encrypted messaging application plans to create the Telegram Open Network (TON), a massively scalable blockchain ecosystem for micropayments and file storage, among other services, through DApps and smart contracts across multiple, connected blockchains.
Previously, the plan was for an open ICO to take place after a two-stage private pre-sale. However, after receiving a combined US$1.7 billion from both stages of the pre-sale, an anonymous source announced to the WSJ that the public ICO would no longer take place. The article suggests that this move was made in response to increasingly harsh SEC regulations. Speculators suggest that Telegram may have been one of the dozens of recipients of subpoenas sent by the SEC throughout March, and decided to shutter the ICO as a precautionary measure.
However, a more likely explanation is simply that the roughly 200 backers provided more than enough funding for Telegram to create its TON. With total pre-sale funding of $1.7 billion, these 200 backers contributed a whopping $8.5 million on average. Of course, this implies that anyone without millions in capital to invest are simply shut out of the opportunity to contribute to TON.
While concerns over regulatory influence are certainly not insignificant, the far greater concern spawned by Telegram’s decision relates to the fundamentals of the ICO model. In traditional investing, only 5% of the population, those approved as accredited investors, have the privilege of participating in startup investing, among other financial activities. One’s status as an accredited investor in the US is entirely based on wealth and income. Accredited investors are individuals with personal net worths in excess of US$1 million, or those who earn an income of over $200,000 annually. The other 95% of the population is simply deemed not qualified to partake in “risky” investing behavior.
The Initial Coin Offering represents a fair and empowering means of investing, as anyone, worldwide, maintains the right to invest as much or as little as they choose in the projects they support. This connects the 95% to the 5% who have been able to accumulate an increasing amount of capital specifically due to the size of their existing capital. Telegram’s decision to limit participation to just the ultra-wealthy flies in the face of the philosophy of ICOs and cryptocurrency in general.
As a result of Telegram’s decisions, GRAM, the fuel behind the TON ecosystem, will be held entirely by just 200 individuals plus the Telegram team. In comparison to other cryptocurrencies and ICOs, this is an extremely centralized distribution. Not only is this a scary precedent, but it means that the most popular messaging app among the global cryptocurrency community now flies in the face of decentralization, a core value of blockchain technology.
Because Telegram’s private pre-sale was so successful, a bigger concern may be whether or not future cryptocurrency initiatives follow similar, centralized solutions. The decentralized nature of cryptocurrency can only be maintained if centralized approaches are not rewarded similarly to their decentralized counterparts.