Why TON is the next largest public chain

Author: Potato's Thoughts, Source: Author mirror, Translation: Golden Finance xiaozou

1, Summary

TON is a proof-of-stake blockchain, indirectly supported by Telegram Inc through the TON Foundation. It is horizontally scaled through a model called infinite dynamic sharding, and managed in a test environment to achieve more than 100k TPS (Solana is 60k TPS). We believe that the chain's native token is currently undervalued for the following reasons:

· Concentrated supply and scarce value, it is a relatively under-held L1.

· Clear listing strategy and first-class distribution channels.

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

· Visible Crypto-specific catalysts.

2、TONOverview

（1）TONChain History

Formerly known as Telegram Open Network, TON traces its roots back to 2018, when Telegram's founding brothers Pavel and Nikolai Durov began exploring blockchain solutions for Telegram Messenger. That year, they raised a total of $1.7 billion through the ICO of TON tokens (formerly Grams), and soon thereafter released the TON white paper and released the first TON testnet in the spring of 2019. After a series of regulatory challenges, culminating in the SEC 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 ceased development activities on the chain, a new group of developers gathered around the project under the name 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. In the meantime, 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 decentralization and 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 associated addresses mining 85% of the tokens in 2 months (July-August 2020).

To date, the TON Foundation has deeply influenced the price of TON tokens and is crucial to the success of the project. Since the foundation was established, its funding has come not only from the initial mining activities, but also from the recent over-the-counter transactions locked to professional investors. 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 that effectively influences and increases the token price.

(2) Current Ecosystem Status

TON currently consists of four main parts, namely: TON Blockchain (blockchain), TON Payments (payments), TON Proxy (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 minimum-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 enables 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 IPs/centralized domains. All four components have a rich roadmap that ensures future cross-compatibility and connectivity.

In recent weeks, the TON chain has witnessed a Cambrian explosion of on-chain activity as the TON Foundation, Telegram, and partners work together to promote the development of the on-chain ecosystem. Most notably, we saw Tether announce an internal directional integration with TON in April, supporting native redemption of tokens, allowing 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 wider range of on-chain incentive programs totaling more than 30 million TONs. The result is that TVL denominated in TON has exploded, 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 there may be some capital loss once the June 2024 rewards are paid out.

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 that 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 clicker 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 the attracted Telegram audience to the on-chain workflow using TON's readily available distribution channels.

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

· Transaction volume has increased 10x: 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 the chain has increased 3.6x: from 600,000 addresses in January 2024 to 3.5 million by the end of April 2024.

· Daily active wallets (DAWs) increased to six figures: from 30k at the beginning of the year to 160k 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 noteworthy for an ecosystem that has historically had a small incentive reward program (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.

3Token Economics Overview

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

The current total supply is 5,105,734,318 (5 billion issued at token launch), with an initial allocation of 85% of tokens to users and 5% to validators. The chain expands 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, when monthly distributions begin over the next 3 years after the cliff period. The total distribution includes about 1 billion TON locked by users and 284 million donated for the incentive program.

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

On the other hand, it is much more difficult to place a dollar valuation on the amount of locked OTC tokens that have been sold, however, judging by the announcements, 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.

· Animoca Brands invested in TON Network in November 2023, becoming the largest validator.

· Mirana Ventures invested $8 million in backing 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 a bit thin. However, as on-chain activity continues to grow through the burn mechanism (50% of TON fees will be burned), the situation should improve.

More importantly, Telegram is actively developing practical functions for 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 split 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、Investment Rationale

(1) Supply Concentration and Under-Holding L1

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

In addition, most of the attention and OTC locked token investment are done by Asian participants, which indicates that EU/US participants are on the sidelines (see the cumulative futures returns in the figure below).

The sharp rise in the past two months has been driven primarily by Asia

From a technical perspective, the token is currently trading between 2-3 times the price at the beginning of this year and the lows in 2023. Compared to the gains of SOL, AVAX and NEAR, the rise of the token is quite small, making the downside risk more obviously smaller.

(2) Clear listing strategy and long-term vision

A grand vision is to easily create a Web3 super app that can compete with WeChat on your own mobile 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, which are essentially a much smaller TAM and therefore deserve a lower valuation. 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 Opportunity

Given that there are currently about 3.5 million on-chain activated wallets, and Telegram's monthly active users (MAU) number is 800 million, and it 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 huge natural upper limit to the 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

With TON trading over $170 million per day in recent months, Binance spot listing may significantly reduce investment risk and provide some upside momentum and more downside protection with increased liquidity.

(5) Risks and mitigation measures

· Can the project maintain its current valuation? This is an ambitious project that is almost fully valued. In such a case, the chain and the native gas token should play a monetary role rather than a tool for technological speculation. Monetary premiums are harder to obtain than technological premiums because they are inherently more ephemeral.

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

· Given that its programming language (FunC) is somewhat obscure, there are only 39 FT developers and about 120 monthly active developers, which is lower than other chains in terms of development participation. ETH has 2,400 FT developers and 78,000 monthly active developers.

· Supply unlocking, Believers Fund will begin unlocking in October 2025, and the distribution period will be three years.

· Regulatory risk remains a factor. However, we believe that regulatory risk has been greatly reduced given the previous battles and adjustments with the U.S. Securities and Exchange Commission (SEC). Telegram clearly hopes 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、Conclusion

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 opening up a more vertical future and carving out its own niche market for consumers who value super-fast and convenient decentralized solutions and prioritize new blockchains that are free to circulate capital and censorship-resistant. In the long run, TON's comparable value cap is $90 billion in BNB, which is a reasonable realistic goal given the above investment advantages, providing significant upside and room to outperform BTC.