Why TON is the next largest public chain

1. Summary

TON is a proof-of-stake blockchain, indirectly backed by Telegram Inc through the TON Foundation. It scales horizontally through a model called infinite dynamic sharding, managing over 100k TPS in a test environment (Solana is 60k TPS). We believe the chain's native token is currently undervalued for the following reasons:

Supply concentration and value scarcity make it a relatively under-owned L1.

· Clear go-to-market strategy and best-in-class distribution channels.

Given the current KPI situation, there is still huge room for growth.

Visible Crypto-specific catalysts.

2. TON Overview

( 1 ) TON Chain History

Formerly known as Telegram Open Network, TON traces its roots back to 2018, when Telegram’s founding brothers Pavel and Nikolai Durov began their quest for a blockchain solution for the Telegram messenger. That year, they raised a total of $1.7 billion through an ICO for TON tokens (formerly Grams), followed shortly by the release of the TON whitepaper and the first TON testnet in spring 2019. After a series of regulatory challenges, culminating in the U.S. Securities and Exchange Commission suing Telegram for conducting an unregistered securities offering in October 2019, Telegram agreed to return the funds raised from investors and pay an $18.5 million settlement by May 2020.

While the Telegram team ostensibly stopped development activities on the chain, a new group of developers gathered around the project under the name of NewTON (later renamed TON Foundation) and continued to work hard, focusing on staying true to the design principles set out in the white paper, namely the "blockchain of blockchains" structure. At the same time, as of June 2020, all available TON tokens can be mined through the "Giver" smart contract using a proof-of-work (PoW) system, with CPU mining continuing from 2020 to 2022. We note that while this distribution method is intended to promote decentralized development and increased fairness, the research structure clearly shows that a large portion of the supply was mined by insiders or addresses associated with the TON Foundation, with only 248 closely related addresses mining 85% of the tokens in 2 months (July-August 2020).

To date, the TON Foundation has deeply influenced the TON token price and is critical to the success of the project. Since its inception, the foundation has been funded not only from initial mining activities, but also from recent over-the-counter transactions locked to professional investors. In order to solidify its strategic direction, the TON Foundation announced a partnership with Telegram in September 2023, led by the core team led by Anatoliy Makosov. The conclusion of this partnership marks a key step towards TON's continued development and market positioning in the wider crypto space and strengthens TON's bullish case, providing a coherent core driver to effectively influence and increase the token price.

( 2 ) Current ecosystem status

TON currently consists of four main components: TON Blockchain, TON Payments, TON Proxy, and TON Storage (decentralized storage). TON Blockchain is a general-purpose blockchain that contains a standard execution layer that allows permissionless transactions. TON Payments is a minimal-fee platform micropayment channel that allows instant and fast payments between peers. It is currently accessible through the wallet bot on Telegram, thanks to the convenience of in-app. TON Storage supports the storage and distribution of files on TON, similar to a decentralized Dropbox. Finally, TON Proxy ensures censorship resistance by allowing users to run .ton sites independently of fixed IP/centralized domain names. All four components have a rich roadmap that ensures future cross-compatibility and connectivity.

In recent weeks, the TON chain has seen a Cambrian explosion of on-chain activity as the TON Foundation, Telegram, and partners work together to advance the on-chain ecosystem. Most notably, we saw Tether announce an internal directional integration with TON in April, enabling native redemptions of tokens, allowing for deeper DEX liquidity and more capital inflows. The TON Foundation is also running various liquidity mining incentives, such as 11 million TONs (about $50 million) designated for DeFi LPs. In addition to DeFi-specific incentives, the foundation is also running a broader on-chain incentive program totaling over 30 million TONs. The result is an explosive growth in TVL denominated in TON, reaching 30 million in April 2024, a 6x increase from the beginning of the year (see chart below). We do note that DeFi TVL is generally quite profit-driven and may lose some capital once the June 2024 rewards are issued.

Given that DeFi liquidity mining is ultimately a solved game, and has seen multiple iterations in previous alt-L1s, we believe the real value of these incentives lies in other more orthogonal niche ways Telegram can incentivize app users to interact with TON. The current bounty program rewards projects that attract users through viral game mechanics, such as the games promoted by NotCoin (a simple but addictive point-and-click app with over 3.5 million daily active users). This will be followed by rewards for completing in-app tasks (such as NFT and DNS domain minting), and finally the aforementioned liquidity mining of the largest DEXs on TON. The ultimate goal is to slowly and gradually introduce and retain attracted Telegram audiences to on-chain workflows using TON's readily available distribution channels.

This effort has resulted in an increase in blockchain activity across all metrics, as follows (see chart below):

Transaction volume has increased 10 -fold: Since March 2024, transactions have been between 2 million and 4 million per day, up from 200,000 per day last year.

The number of wallets activated on-chain increased 3.6x : from 600,000 addresses in January 2024 to 3.5 million by the end of April 2024.

The number of daily active wallets ( DAW ) has increased to six figures: from 30,000 at the beginning of the year to 160,000 now.

TON daily fees between $ 50k and $ 250k : Half of TON fees are burned.

While these rising numbers themselves may indicate inorganic and non-sticky on-chain participation, such rapid growth is concerning for an ecosystem that has historically had small incentive reward programs (compared to Avax’s $180M 2021 incentive program), whether or not this level of activity and TVL is sustainable after the incentive period should be monitored.

3. Overview of Token Economics

The basis of this article’s argument is the robust token economics features. While valuations are relatively high at $24B FDV and $16B circulating market cap, the current large supply that is tightly controlled by the TON Foundation and its affiliates, the low inflation rate of the validation network, and the methodical OTC sales used to distribute supply to investors are all positive.

The total supply is currently 5,105,734,318 (5 billion issued at token launch), with an initial distribution of 85% of tokens for users and 5% for validators. The chain inflates at a rate of 0.6% per year, paying rewards to validators to maintain consensus. Looking deeper, we notice that about 1.3 billion tokens are locked in the Locker smart contract (called Believers Fund), locking up more than 20% of the TON supply until October 12, 2025, starting monthly distributions for 3 years after the cliff period. The total distribution includes about 1 billion TON locked by users and 284 million donated for incentive programs.

In addition to the locker contract, the TON Foundation has also locked up approximately 1.1 billion TONs held by large early miner wallets that have not made a single transaction in 48 months. The result of these two actions is that approximately 47% (2.4 billion tokens) of the TON supply will disappear from circulation in the foreseeable future. Therefore, the effective circulating market value is approximately $8.5 billion.

On the other hand, it is much more difficult to put a dollar value on the amount of locked OTC tokens that have been sold, however, judging by the announcement, it appears that at least $30 million worth of tokens have been sold to venture capital firms and professional investors:

MEXC Ventures made an “eight-figure” investment in TON in October 2023.

In November 2023, Animoca Brands invested in TON Network and became the largest validator.

Mirana Ventures invested $8 million in support of TON tokens in March 2024.

Given that TON is still in its early stages in terms of adoption, the value accumulation narrative for the token is somewhat weak. However, as on-chain activity continues to grow through the burn mechanism (50% of TON fees are burned), the situation should improve.

More importantly, Telegram is actively developing practical functions of TON tokens to enhance their value. For example, Telegram recently announced that it will use TON tokens exclusively for advertising payments. That is, advertisers need to use TON to fund their marketing campaigns, and the revenue will be divided equally between Telegram and content creators. In addition, Telegram has begun accepting TON for payments related to Telegram Premium (Telegram Premium has 5 million users) through the Fragment Store. These initiatives show that the Telegram team's efforts have been carefully considered to ensure that TON remains a token with practical value and has a clear value-added mechanism directly related to Telegram services.

4. Basic principles of investment

( 1 ) L1 with concentrated supply and insufficient holdings

With a modestly low inflation rate of 0.6% per year (lower than Bitcoin), medium-term volatility is relatively low given that about 50% of the supply is locked in the Believers Fund and inactive miner wallets, and that about 86% of mined tokens are controlled by or affiliated to the TON Foundation to some extent.

Furthermore, most of the attention and OTC locked token investments were done by Asian participants, suggesting that EU/US participants are sitting on the sidelines (see the cumulative futures returns chart below).

The sharp rise in the past two months was mainly driven by Asia

From a technical perspective, the token is currently trading between 2-3x its price from the beginning of this year and the lows of 2023. Compared to the gains of SOL, AVAX, and NEAR, the token's gains are quite small, making the downside risk more obviously smaller.

( 2 ) Clear go-to-market strategy and long-term vision

A grand vision is to easily create a Web3 super app that can compete with WeChat on your own phone. This vision marks a fundamental shift from the status quo where a large number of crypto blockchains and DApps serve speculators and technically savvy people, which are essentially a much smaller TAM and should be valued lower. Tether provided soft support through its integration announcement, and of course Telegram also provided practical support, whether it is TON Blockchain, TON Proxy, TON Payments or TON Storage, there is a strong and reliable roadmap to guide.

( 3 ) Huge growth opportunities

Given that there are currently about 3.5 million on-chain activated wallets, and Telegram has 800 million monthly active users (MAU) and is expected to reach 1.5 billion in the next five years, it can be said that TON has considerable growth potential. This represents a natural upper limit to a huge total addressable market (TAM). The strategic goal of the TON Foundation is to convert 30% of Telegram's monthly active users in the next 3-5 years. If Telegram can successfully convert 0.2% of its 200 million daily active users, it will exceed Ethereum's current daily active users of about 400,000. Obviously, this is a huge opportunity to expand the user base.

( 4 ) Crypto -specific positive factors

In recent months, TON’s daily trading volume has exceeded $170 million, and Binance’s spot listing may significantly reduce investment risks and provide some upside momentum and more downside protection with increased liquidity.

( 5 ) Risks and measures to reduce them

Can the project sustain its current valuation? This is an ambitious project that is almost certainly fully valued. In this context, the chain and the native gas token should function as currency rather than a tool for technological speculation. Monetary premiums are harder to earn than technological premiums because they are inherently more ephemeral.

The details of TON OTC trading need to be further explored, as capital that may become marginal price makers will choose to buy discounted OTC tokens, reducing the buying pressure in the open market.

· Supply unlocking: Believers Fund will begin unlocking in October 2025, with a distribution period of three years.

Regulatory risk remains a factor. However, we believe that regulatory risk has been significantly reduced given previous battles with the SEC. Telegram clearly wants to integrate the token into the platform, and we have reason to believe that Telegram has conducted thorough legal due diligence to ensure that their current and future TON operations comply with the necessary laws and regulations.

5. Summary

We believe that the vast majority of TON's growth will not come from existing on-chain users of the EVM and Rust blockchains. TON is carving out a more vertical future, carving out its own niche market of consumers who value super fast and convenient decentralized solutions, prioritize capital circulation freedom and censorship-resistant new blockchains. In the long term, TON's comparable value cap is $90 billion in BNB, which is a reasonable realistic target given the above investment advantages, providing significant upside and room to outperform BTC.