Toncoin drops 20% after the arrest of the inventor of Telegram; Pantera Capital invested more than $100 million in the cryptocurrency earlier this year.
TakeAway Points:
- Toncoin’s value has dropped by 20% as a result of Telegram creator Pavel Durov’s imprisonment, reaching $573 million as the total value locked on the blockchain.
- As they evaluate the effect on Telegram’s user base and Toncoin’s future, major investors including Pantera Capital, Animoca Brands, and Mirana Ventures are uncertain.
- Even with all of this chaos, some investors, such as DWF Labs, see chances and bought millions of dollars’ worth of Toncoin after its price collapse.
The arrest of Telegram’s founder rocks the crypto industry
The recent detention of Telegram founder Pavel Durov has sent shockwaves through the crypto venture capital sector, particularly affecting investments tied to the messaging app’s associated digital token, Toncoin. Major players like Pantera Capital Management, Animoca Brands, and Mirana Ventures have significant stakes in Toncoin, which is integrated into Telegram for functionalities such as instant payments. Pantera Capital, one of the largest crypto VC funds, invested over $100 million into Toncoin earlier this year, according to a source familiar with the matter.
The allure for these investments stemmed from the belief that Telegram could evolve into a digital-asset “super app” similar to China’s WeChat, leveraging its 900 million users to drive Toncoin adoption for various activities, from payments to blockchain-based games. This optimism led to a fourfold surge in Toncoin’s value from February to early July, with assets locked on its blockchain, TON, briefly surpassing $1 billion.
Effect of Durov’s court cases
Durov’s arrest on August 24 outside Paris on charges including complicity in the spread of child sexual abuse images and drug trafficking has exposed the inherent risks of such investments. Telegram has stated that it complies with European laws, but the allegations have nonetheless caused significant market turbulence. Toncoin’s value plummeted by approximately 20% following Durov’s detention, though it has since recovered some of those losses. The total value locked (TVL) on the TON blockchain has also dropped to $573 million, as per DefiLlama data.
Lasse Clausen, founding partner at crypto VC firm 1kx, commented on the situation, stating, “The majority of the investors thought that obviously the app itself is going to foster and promote, or at least seed, the adoption of the Toncoin network. Now we have a case where a black swan event happens to the company itself and its founder — that might raise some questions about the future.”
VC investors evaluate their approaches
VC investors who have poured money into Toncoin are now grappling with the potential fallout from Durov’s legal issues. Many of these investments come with agreements that prevent selling for at least a year, adding another layer of complexity. Pantera Capital, which has described Toncoin as its largest investment, has not disclosed the exact amount but is subject to a one-year lockup period. This means they can only start offloading Toncoin in batches after this period.
Despite the turmoil, some investors see an opportunity. Eugene Ng, co-founder of DWF Labs, a crypto market maker, revealed that his firm spent “millions” buying Toncoin in the open market over the weekend after its price crashed.
Token deals, where VCs receive tokens instead of traditional equity, are unique to the cryptocurrency universe and offer quicker exits compared to traditional venture investments. However, they also come with high volatility. Pantera, for instance, bought Toncoin at a 40% discount to the market price at the time, which still leaves the investment profitable based on May’s average price of $6.32.