TON of problems: Why a billion users couldn’t help Pavel Durov's Telegram turn a profit and how his arrest could threaten his business

RU

Telegram, founded in 2013 by Pavel Durov and his brother Nikolai, was initially financed by Pavel's personal earnings from the social network VKontakte. If this business plan had remained sustainable, Durov’s current issues with the French authorities might not have affected cryptocurrency owners. However, recognizing the limits of his own resources, Durov began seeking monetization opportunities. In 2017, the brothers launched their own blockchain, Telegram Open Network (TON), along with the Gram cryptocurrency.

Conflict with U.S. authorities

An Initial Coin Offering (ICO) for Gram was launched in January 2019. At the time, Telegram already had nearly 200 million users, and the new coin had the potential to become incredibly popular. Although competitors like Ethereum offered more advanced technologies, they lagged behind Telegram in terms of user reach. Durov successfully raised $1.7 billion for 2.9 billion Gram digital coins from 171 initial buyers worldwide, including notable Russian investors like Roman Abramovich, Sergey Solonin, and David Yakobashvili.

However, on October 11, 2019, the U.S. Securities and Exchange Commission (SEC) accused Telegram's owners of illegal asset sales and filed a lawsuit. By then, more than 1 billion Grams had been sold to 39 buyers in the U.S. In 2020, a court ruled that Telegram Group Inc. (the holding company) and its subsidiary TON Issuer Inc. (the token issuer), registered in the British Virgin Islands, must cease distributing tokens.

The court determined that, from a formal standpoint, Gram is a security, and therefore, the Telegram team should have disclosed information about their financial position, management structure, potential risks, and more before the ICO. Durov attempted to contest this determination in court, but was unsuccessful. The company was ordered to return $1.2 billion to investors and to pay an $18.5 million fine.

After this, Durov publicly abandoned the project and, unexpectedly, released its code as open-source, handing it over to an “independent” community of developers separate from Telegram. Officially, Telegram is no longer connected to TON, which is now known as The Open Network. However, the cryptocurrency is still used within the app, including for advertising payments, and its value continues to be influenced by news related to Durov and the messenger.

When Telegram announced a TON reward program for channel authors, the coin's market capitalization surged past $25 billion. This growth was further fueled by the success of various mini-games on the TON blockchain within the app, particularly the immensely popular Hamster Kombat.

Fine-tuning

TON was developed by multiple groups, with the most successful and secretive being New TON. It is known, however, that two key developers of the original Telegram network, Anatoly Makosov and Kirill Emelyanenko, supported the project by founding the TON Foundation in Switzerland for New TON. The group also included Andrey Rogozov, the former CEO of VKontakte. According to crypto-analytical firm WhiteRabbit and crypto-legal company Aurum, this initiative group has ties to both Telegram and VKontakte. However, it remains unclear whether Durov personally profited from the cryptocurrency.

Looking ahead, TON aims to create an ecosystem independent from Telegram. For now, however, it remains closely tied to the messenger. This dependency introduces significant risks for the project, especially in light of Durov's arrest. If, in response to the charges brought by French authorities, Durov is compelled to tighten moderation and implement “know your customer” (KYC) rules in the Telegram wallet — requiring users to disclose their identity, the source of funds, and the purpose of payments — it could spell the end of the entire experiment. Centralization undermines cryptocurrency's primary advantage over traditional money: anonymity.

Stellar loss

The failure with Gram forced Durov to explore more traditional financing methods for his messenger. Telegram issued bonds, raising over $2.3 billion through an initial offering in spring 2021 and two subsequent issues in 2023 and early 2024. Bondholders receive a 7% annual coupon, with the bonds set to mature in the spring of 2026. Although Durov did not disclose specific details about the placements, he mentioned that “world-class funds with an impeccable reputation” were among the investors.

However, loans are only a temporary solution. To cover the $161 million needed annually for interest payments — and to eventually repay the debt — Durov needed a reliable way to monetize the app. This led to the launch of a paid premium subscription in June 2022.

At the time, Telegram had 700 million users, and Durov noted that if even 2.5% of them bought the upgrade, it would be enough to cover all expenses. The cost of a paid subscription varies from country to country, but it averages about $4 per month. Based on Durov’s math, if 17.5 million people paid for a subscription, then after deducting VAT and app store commissions, Telegram should have been left with $45 million per month (or $540 million per year) to cover all costs.

Assuming the cost of servicing the app increases proportionally with its user base — now in excess of 950 million — Telegram likely needs around $60 million per month (or $720 million annually) just to cover expenses. However, the actual figure might be slightly lower, as a portion of the costs in any business remains fixed, meaning that they do not scale directly with the number of users.

Telegram is not required to publish financial reports, as it is neither publicly traded nor a joint-stock company. As a result, its exact number of paid subscribers — and the company's losses — remain unknown. However, Durov stated earlier this year that 5 million users had subscribed to the premium service, with an additional one million subscribers joining in just one month. At that time, the messenger had around 800 million users, meaning they would need to attract 2 to 2.5 times more subscribers to break even.

The company does have other revenue streams, including advertising for regular users and “stars,” as well as Telegram Stars — an internal currency that users can spend on digital products from creators within the app. While Telegram does not disclose the profitability of these funding sources, Durov mentioned that advertising generates “hundreds of millions of dollars.” He also expressed confidence that the company should become profitable by 2025.

Two paths

If the charges against Durov are resolved in his favor, he will likely have two options for raising funds. The first is selling the messenger — a possibility the billionaire dismissed in calmer times, stating:

“The world needs Telegram to remain independent as a place where users are respected...and, as the sad examples of our predecessors show, this is impossible if you become part of a corporation.”

The second, and more likely option, is a stock market listing. Telegram could have become profitable much earlier had it issued stock, as Facebook and Twitter did, instead of relying on bonds. This approach would have allowed the company to pay dividends from profits when they materialize, without the obligation to repay investments at the end of a fixed term.

The primary drawback of issuing stock — one which likely concerns Durov himself — is the increased need for transparency and the potential changes to the company's management structure. Given his experience with the shareholder conflict at VKontakte, which forced him to sell his stake and step down as the company’s CEO, it is understandable that Durov would want to avoid introducing co-owners with management rights.

According to the Financial Times, Telegram had planned to pursue an IPO as soon as market conditions improved and the company achieved profitability, with expectations set for next year. However, following Durov's arrest, the initial public offering is likely to be postponed — or canceled. This decision is influenced not only by legal complications, but also by a decline in the attractiveness of investing in Telegram.

Launching an IPO while the company's leader is under arrest or in prison is impractical, particularly when the brand is closely associated with its founter’s persona. The significant drop in the TON exchange rate, despite its unofficial connection to Durov, only further underscores this reality.