Telegram has raised an initial $850M for its billion-dollar ICO | Hacker News Reader

Telegram has raised an initial $850M for its billion-dollar ICO

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184 pointsdoppp102 comments

The inherent issue with ICOs is pricing.

Buying tokens, which can be exchanged for a service at an unknown ratio (price), amounts to financing a new fast food chain by buying a million tokens for $1,000, where the tokens can be used to purchase hamburgers once the chain opens. The problem is that you have no idea if those million tokens — once the chain is up and running — will buy a thousand hamburgers or three.

So there’s a dichotomy here. Either your tokens remain low in value, and the end product of the business will be cheap (as it’s priced in these tokens) and you make no money as an investor, or the token price will increase and the end product will be expensive (but you’ll be able to sell your tokens for a profit).

In the end it’s a useless proposition: either token holders will be able to buy cheap hamburgers if the token price is low (thus causing a loss to the issuer/hamburger producer) or they will sell their expensive tokens for dollars and use dollars to buy their hamburgers elsewhere.

> the end product of the business will be cheap (as it’s priced in these tokens)

Essentially every one of these services creates a distributed market and almost none of them make the mistake of somehow deciding the price of the service in tokens in a way that wouldn't cause the market to adjust to reflect the value of the token (and ironically the only one I can come up with that makes this mistake was the WhopperCoin ;P). If the value of the token doubles then the cost in tokens of using the service should quickly drop by half. This is an annoying volatility but the service absolutely doesn't become more expensive or cheaper based on the value of the token. This isn't "one token buys one hamburger", this is simply "you can buy and sell hamburgers with tokens".

But as a consumer, why would I place my trust, and store my value in your shallow liquidity token when I prefer to just hold dollars?

Certainly the company ICO'ing benefits from the infusion of money selling their token, but what is the value prop for all these different tokens for consumers? (read: not speculators or investors)

Also, if the tokens trade for fiat on an exchange, then they certainly would be volatile as far as what value they can be exchanged for. How can you ensure the service doesn't become more expensive?

Most ICOs don't have much value prop, but Telegram has a lot of network effect lock-in that they can use to force people to use their token for any services that ride on the Telegram network. And according to the leaked white paper, they're planning to offer every imaginable service similar to WeChat.

As a consumer you likely wouldn't -- you'd buy the tokens as needed and liquidate them immediately. As an investor you might for the same reason you would invest in any other enterprise. If you believe that the application is likely to become popular, then more people will be needing the token that powers it, thus the price of that token (against other assets) will go up.

It’s launching an airline by pre-selling miles. Sure, you might have 1,000,000 miles and Platinum status on that new airline, the boarding passes are on the blockchain, but the airline gets to control the mile redemption rates and status privileges for that Platinum level.

Also if people redeem these miles, wouldn't it bankrupt the airline or at least significantly affect its profitability?

It you control the redemption rate then you can just force redemptions below some level that keeps you profitable.

Airlines do this already, frequent flyer-eligible tickets are a small portion of the overall tickets available, blackout dates, etc...

Except, of course, that the majority of ICOs today are not organized by airlines (as in, businesses with known market prospects), but by random groups of people with sketchy plans, many not even incorporated (as the saying goes "some even have a homepage".)

> It’s launching an airline by pre-selling miles.

If that’s the case, then where does Telegram state what and how much one token can be redeemed for?

An airline “mile” is redeemable in something physical (being flown a mile), but I haven’t seen any information on what I can redeem a Telegram ICO token for (although I may have missed that).

Unless Telegram explicitly allows people to redeem their tokens for some specific quantity of a service, then it does indeed amount to selling a service at an unspecified price.

> once the chain is up and running — will buy a thousand hamburgers or three

Like almost all dichotomies, it's a false dichotomy.

Most ICOs end up going up by 2x, but having the 1000x you described are very rare, plus ICOs going down in price are also not as frequent. Most ICOs stay in their price range.

Maybe I'm the last to join the party but if i understand correctly, is this money they are going to receive as investment?

I ask because as much as i can google I can't find any product they are selling or any ad they are displaying, so what is being bought here?

I'm not trying to be sarcastic, is there something i am missing?

There's a private whitepaper floating around.

Presumably they will use the tokens in the app for payments and a way to run decentralized applications (so paying for computation, storage, etc.) What's being sold is the potential for the token price to appreciate in value. It's definitely a worse deal for investors than an IPO as there is no equity being sold.

That certainly depends- Ethereum didn't sell equity and investors in the pre-sale did very well.

> It's definitely a worse deal for investors than an IPO as there is no equity being sold.

If you pay $100,000 for 100 shares of Google I guess you're technically getting equity, but what exactly is the advantage of that?

Sure, your broker has a digital ledger that records your ownership, but is that fundamentally different from digital entries in any other ledger just because there's equity?

Whether you buy Google shares or Telegram tokens, the only reason you're buying is because you expect the price to go up in the future.

I'm not sure equity has anything to do with it.

Well, with shares you are more or less guaranteed that they will increase in value, if the company does well.

With tokens this is not clear, as it would be possible for Telegram to do insanely well, but the tokens not being very popular/being used for some unimportant feature.

Thw tokens not being used is what gets me. Is telegram incentiveized at all to use the tokens? Sure they own a lot of them, but so what? They already got the cash and they can just use it to do business like normal and make money that way. Why try and get people to use tokens to do business when they can just have them use fiat to buy things? The transaction of the tokens is taxable just like any sort of barter exchange, so it's a lot more complicated to work with than fiat. I just don't get it. It might work for a business that is locked out of the banking system, but otherwise, why bother?

Are there any ICOs that have tokens that are valuable based on anything other than their speculative value? Do any even have a dividend or are useful for anything besides trading on exchanges? Most tokens seem to have a big spike and then slowly grind down in value over time. It just seems to me like a "make your own speculative bubble" industry.

Shares mean you get a vote in the running of the company. You also have recourse in law to bayous standards according to the country's laws they are registered in

google as a class of shares with no voting rights, and historically the market price is not very different from the voting stock.

The U.S. government has a set of laws that govern what “shares” in a US-listed company mean. If Google’s management tries to completely nullify what equity ownership means, the US government will go and take it back. They will freeze the founders assets. They will ground the company aircraft. They will send scary men with big guns to make arrests of people indicted by a grand jury. Those things are pretty hard to get away from, short of fleeing to Venezuela or something.

What analogous threat of violence is behind the value of Telegram tokens?

IRS, FTC, or SEC raids?

Fraud is fraud whether it is in equity shares or ico magic money. Granted, equities are much better monitored and regulated, but if they steal from investors through the ico, they will likely face similar enforcement.

It’s only fraud if the promises of the contract have been broken. Nowhere in their whitepaper they equate a token with a right to receive dividend or to claim a share of the company’s assets in the event of a sale.

None of these dapps have implemented or demonstrably plan to implement any systems that require the use of these tokens in a way thats compelling. who cares if youre goldcoins on flavorville are on a blockchain? its such a trivial and incredibly boring use of the infra. I’m actively working in this space on open financial instruments, a common standard and “designer software” to model and test contracts before they get issued and broadcasted by market participants. also needed is a formal specification for contract formation that doesnt cripple rapid prototyping by quant devs or enterprise companies. Mass-market adoption of arbitrarily complex financial products is tricky and could be fraught with problems and dangerous classes of errors, which makes the need for the new instrument types to be interoperable across wallets and exchange venues, while also being editable and more easily deployable is critical to be aware. While displacing intermediaries structurally due to the extinction of prior trusted models, its important to understand that these tokens basically do represent ewuity ownership and calling them in app currency is not a reasonable “trick” to get around securities legislation

If I own shares of Google, there are two methods of earning money. Appreciating of the stock or dividend payments for my share of profits.

ICO only offers me the speculation part.

GP may have selected GOOG because it does not pay a dividend (like BRK.A).

Are you saying BRK.A pays a dividend?

No sorry I see how that was confusingly worded... GOOG does not pay a dividend, much like BRK.A does not pay a dividend. I'm sure there are other stocks that don't, I just can't think of any others off the top of my head.

Majority of stocks pay dividends, but some double digit percentage do not.

Neither did apple, until it did. But regardless, the appreciation is there. Google reinvests profits and buys back stock thus adding to the capital appreciation of their stock (something that yields better tax advantage than dividends anyway).

> Whether you buy Google shares or Telegram tokens, the only reason you're buying is because you expect the price to go up in the future.

I am not arguing the equity angle. I kind of agree with you on that, especially because you used Google as an example.

But, I am getting a bit tired of people making it sound like IPO and ICOs are the same. They are not. Google or any other company have to be in operation for year(s) and show consistent revenue, if not profits and even talk about their future plans on how they will use the money before people "expect their prices to go up.

ICOs on the other hand rely simply on paper. No one knows whether they will deliver on their promises and expect price to go up. It is like VC investing for sure. But, without the expertise required to vet ICOs the whole "expectation of price going up" can be described as FOMO.

Shares can also pay dividend.

Apologies if I ask stupid questions, but can someone explain me the relationhsip between the tokens created in ICO and ethereum (or bitcoin)?

I mean, are these new tokens completely indpendent (economical) entities with no connection to the value of other cryptocurrencies, or do they somehow derive value from ethereum?

To put this in practical terms, if I want to raise money via an ICO and promise that you can use a token in one year's time to buy USD100 worth of gadgets from me, is that doable without anyone taking any risk on the fluctuation of value of cryptocurrencies?

The new tokens are completely independent of other tokens. Buying at ICO, you’re acquiring tokens that you hope will have value once the system is up and running.

I’m sure you could do that somehow, but I don’t believe anyone has done it.

But isn't there some link between ICO and traditional cryptocurrencies? I thought the transactions are somehow logged to e.g. ethereum blockchain?

Most tokens are implemented by ethereum contracts, because it is the simplest way to implement such thing, but they don't have to be.

Here is where I go confused. New tokens are supposed to be completely independent from ethereum economically, but at the same time they are somehow ethereum contracts. Would that not mean that someone needs at some point own ethereum and take the market risk?

Yes, to transact tokens that run on top of Ethereum you have to pay transaction fees in ETH, which AFAIK means you need to buy at least a small amount of ETH. There are some recent proposals that would allow fees to be paid in other tokens, so I guess if those go through then you could use tokens without ever touching ETH.

There's no product yet, they're selling the tokens that will be used in future products.

When we finally find use cases that make cryptoassets relevant to regular people for routine activities, then the skeptics will understand that there's more going on here than just tulips and Ponzis.

Telegram has real potential to do that, it just takes some imagination to see what it could be.

They way you describe it makes it sound like you're giving free money to vapourware. Telegrams ideas around tokens could be useless and lead to the tokens being valueless. At a minimum we should expect a clear product roadmap from them.

Small nit: Until we finally find use cases that make cryptocurrencies relevant to regular people there's nothing more going on here than Tulips and Ponzis.

unless

I chose "until" specifically because finding a good use case does not justify any of the shenanigans that happened before that discovery. The word "when" doesn't carry that connotation, and "unless" doesn't either - though I'm guessing you chose it because it implies we may never find one?

We may as well do, but unless that actually happens, it's going to continue being just wishful thinking.

Given that nobody has found those use cases yet, why do so many people assume they exist?

Well, investing such cryptoassets into other cryptoassets as well as hodl’ing those cryptoassets are two robust everyday use cases.

Per the SEC filing, yes, they are receiving the $850M as cash from private investors (mostly VCs).
The "product" they are selling is tokens for their ecosystem, described in this leaked whitepaper: https://drive.google.com/open?id=1oaKoJDWvhtlvtQEuqxgfkUHcI5...

Does it say in the document who the investors are? How did you know they are VCs?

Not the parent, but I suppose it's safe to assume that VCs populate most large deals in tech. He also said 'per the SEC filing', so his source could be that.
With that said, Telegram's founder, Pavel Durov, is a Russian entrepreneur and of the $850m from 81 investors, an entire $300m was invested by a well-known oligarch in the country, Roman Abramovich.

Thanks, that was a good read. And raises a lot of questions in my mind.
They are going to use PoS mechanism. So, I had to look at the token distribution scheme. 4% by the team and 52% by "Ton Reserve", which I think is not explained. With only 44% held in hands of non-Ton people, is this even decentralized?

If it's proof of stake and the majority is held in a single hand and the proof of stake required isn't a supermajority... then it's basically a database under the control of one entity.

> is this even decentralized?
not in the least

ICOs aren't decentralized. They are tokens sold by an entity that premine them and generally control most aspects of the project. There might be exceptions, but I can't think of any.

So are you saying when Ethereum did ICO it was not decentralised? And you do realise this will have its own blockchain and only reason there needs to be a blockchain is "decentralisation".

Ethereum didn't even exist when it ICO'd, neither in code or in blockchain.

Note that the $/coin scale was exponential during the ICO and private. Essentially premined by well-connected vcs.
Similar to startups before reaching IPO but much faster.

All coins in presale were sold at a fixed price, will be same for second round then on curve for future tokens

I think the strategy is getting in a central position in people's communication; they also have a huge user base; perhaps that doesn't justify 850M but those are some things to look at.
Wherever someone has this big influence and strategic position, they will have big chances to leverage them and make such investment worth (especially if the founder has a proven business-runned mind).

This is truly nuts. We are living through some truly irrational craziness that makes the dot com bubble look like nothing. When this correction comes it’s gonna be really bad. Greed is not a good thing folks.

To be honest I have not seen any official marketing page from telegram nor any ico calendars like https://www.coingecko.com/en/ico . Is this entirely private by some group of deserving entities? When will the public can and able to participate?

That's interesting for sure as it is not even on biggest tracker https://www.trackico.io

The cake is eaten first by the guys with big guns. Then, ICO will likely go public, where public buys enough so that the big guys can dump and get what they invested + interest. If you want in, you are already late to the party...

Most likely next month or soon after

They seem to want to do things properly wrt SEC. That would mean only advertising to accredited investors.

Thanks to securities laws, the rich get richer, and the poor have to wait for the scraps.
Ideally the SEC's mandate would be limited to going after P&D groups and other scams, and no longer include enforcing restrictions on selling securities to unaccredited investors as a non-public company.
If the poorest households are allowed to spend 9% of their income on lottery tickets, I don't see the justification for preventing unaccredited investors from investing in whatever they want.
All it does is eliminate the long-tail of small companies and nonprofessional investors from participating directly in a key sector of the economy.

This is going to be an interesting fiasco, chewing ever more on the shaky public trust. The layman still getting in on this stuff makes it so private investors can liquidate their worthless investment at a premium, the former won't learn before the later does.

This is hilarious as so many people use telegram to pump and dump crypto currency using Telegram.

One of the wealthiest russians Roman Abramovich invested about $300M in Telegram.
https://en.crimerussia.com/oligarchs/roman-abramovich-invest...

That's really bad if it's true. When thugs invest in technology there are many other risks besides reputation, trust, etc.

I don't see any bad consequences of such investing. Russians are famous of their conservative approach, but even conservatives sometimes do efforts.

That means that Roman Abramovich is the largest investor in Telegram ($300M is 35% of $850M).

The only question is - was it business investment followed by will of Abramovich or something else?

Other than the people at the top laundering money, I don't see how anyone could get tricked into putting any money into this.

We now live in a world where you can have two products side by side, where one has any of "Crypto" "Block" Coin" or "Chain" in their name or description and the other does not, where both products do the exact same thing, and have one of them raise billions of dollars overnight from VCs and the other one not get a single upvote on the new page of HN.
We truly live in a post-informational time. Everything is emotion. Nothing is about rationalization or sense or an actual understanding of how something works. Because we don't know how the thing worked, the numbers got giant, and we want giant numbers too. So if you use the same words as the thing we will plow money into you like no tomorrow because we still don't understand the thing but we see 1000x profit in 5 years.

Seing that "people at the top" hold a non-negligible fraction of world's assets lends some credibility to cryptocurrencies.

Isn't their crypto implementation still private?

no, but it's still weird.

It is. I hope they don't do the same thing with their code for whatever they're making.

No it's not, the source is on Github. Windows client looks like it uses openssl, Android client looks like it uses boringssl. I didn't actually clone the repos and and take a proper look tho.

What do you mean by "it is"? The Telegram client is open source.

The telegram server is not.

In this case "private" have nothing to do with the code license. Problem with Telegram is that protocol and cryptography they use is their own. They might use better reviewed protocol like one of Signal, but they didn't.
No need to explain what dangers same strategy going to cause with cryptocurrencies.

Was the Signal protocol reviewed in 2013 when Telegram was launched? It seems it was developed in 2013.
I'd say the biggest problem with Telegram is the fact that E2EE isn't enabled by default and no one (that I've chatted with) uses it.

The official desktop client doesn't even support it, after years of people asking for it. Telegram is basically equivalent to Hangouts or any other random chat app, if you care about security.

Yup, terrible. The native macOS desktop client (available in App Store) actually supports it. At least it did when I tried it.

People will tell you, that there is big gaping crypto vulnerability in Telegrams client-server crypto because it is not secure under CCA. In fact this is only certificational weakness (ie. attacker can replace message with different ciphertext that encodes exactly same message). The crypto is somewhat weird, but it is clear that motivation for the weirdness is getting small ciphertexts.

Client doesn't mean everything. In applications like these, there shouldn't be even a single binary blob without code for it.
To their credit, they said they will, but this[1] has been on their website since a very long time.
[1]:https://telegram.org/faq#q-why-not-open-source-everything

Given that their crypto implementation is not even actually used, this seems like a red herring.
Telegram is not an encrypted messaging app.

That's a little misleading. Telegram supports "secret chats" which are e2e encrypted. See https://telegram.org/faq#q-how-are-secret-chats-different and https://core.telegram.org/api/end-to-end

I think that’s more misleading. Certain telegram clients support encrypted chats, which are never ever used by anyone.

Relevant: 'Dawn of the Billion Dollar ICO' https://hackernoon.com/the-dawn-of-the-1b-ico-a0486f6587a2

There's obviously no way they need so much money. The discounts pre-sale investors receive on their tokens will be enough to let them sell at a profit when the tokens become saleable. We don't even know how far along is the implementation they're working on, what will future adoption be like - at this point, there's only insider investors looking to cash in on the hype.

Yep. 850m is a crazy amount of money for product development. What do they want to do with all that money?

Given that Russians created Telegram, why does anyone trust it?

This is a quite racist and unnecessary comment. It doesn't belong on Hacker News.

I am not sure how you think that’s racist. Distrust in Russian products is a current discussion.

Another ICO. ICO that, ICO this... you cannot even go to another tech conference without an ICO gets mentioned. All this 1000 of crypto coins are useless in long term and I won't support Telegram too. There are 3 main players named Bitcoin, Litecoin and Ethereum which will stay here longterm and I don't see that changing anytime soon.

You mention Litecoin but not Ripple?

Ripple will also stay I think. But I would be careful of Ripple. Just my opinion. It's interesting it's connected so well with many financial institutions and that they have big names on board but I would be a bank I would rather look in something like Stellar than Ripple which is (theoretically) in a centralized control of one entitity. All this locked up XRPs which are not in circulation would not let me sleep well.

I guess they are expecting x20 basing it on the 20B paid to Whatsapp

More Russian bullshit.

There’s definitely zero hype left in Blockchain.

crypto/blockchain is significant and has broad implications for how human social structures cooperate on a global scale. consider everything you do on a daily basis and think about transactions and interactions you have with others - all of them

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