Supply is concentrated, L1 value is underestimated, TON is expected to become the next big event in cryptocurrency

Original Title: "Why TON might be the next best thing since sliced bread"

Author: Potato's Thoughts

Translation: Deep Tide TechFlow

Compared to some long-time players, my involvement in DeFi/cryptocurrency has been relatively short, maybe close to two years. During this time, due to the volatility of DeFi and the broader cryptocurrency market, I feel like I've aged 50 years, but I feel like I've seen it all. Disorder, gambling, leverage, the struggle and dissatisfaction with opponents on the rise, and the devastating setbacks, liquidations, malicious joy, and ruthless rug pulls/exploitations on the way down. That's why I think I'm very suitable for publishing this traditional financial-style memo, discussing a cryptocurrency that may pique the interest of some fund managers while also attracting retail investors who just want to make a splash. I hope to continue creating more articles like this and conducting some independent exploratory digital analysis as long as

1) Cryptocurrency alternatives remain interesting, and more importantly:

2) If I notice disproportionate coverage on Twitter for a specific project/gameplay, as it has been for TON and its ecosystem.

Cryptocurrency: The Wild West of Financial Markets. The risk is too high not to participate.

This article will focus on TON - the Open Network, essentially a summary of the essence of the blockchain project from various sources, covering the project's history, current supply and demand dynamics, unique token economics, and some of my own views from multiple perspectives. This memo was written on April 29, just a week before Pantera's headline news of purchasing locked TON tokens at an undisclosed price, marking their largest investment. Although this development does indeed signal that the investment is no longer "undervalued" to some extent, all analyses have not changed due to this development.

Content Summary

TON is a proof-of-stake blockchain indirectly supported by the TON Foundation with backing from Telegram Inc. It achieves horizontal scalability through a sharding architecture called Infinite Sharding Paradigm and has achieved over 100k tps in a test environment (compared to Solana's 60k). Considering the following points, we believe that the native token on this chain is currently undervalued.

1. Centralized supply and scarcity value as a relatively less-owned L1

2. Clear market entry strategy and excellent distribution channels

3. Given current key performance indicators (KPIs), there is a significant amount of new growth potential

4. Specific crypto-specific catalytic factors

TON Overview

TON History

TON was initially known as the Telegram Open Network, with its origins tracing back to 2018 when Telegram's founding brothers Pavel and Nikolai Durov began exploring blockchain solutions for the Telegram Messenger. In that year, they raised a total of $1.7 billion in the first public offering (ICO) of TON tokens, followed by the release of the TON whitepaper and the launch of the first TON testnet in the spring of 2019. After facing a series of regulatory challenges, they were ultimately sued by the SEC in October 2019 for conducting an unregistered securities offering, and Telegram agreed to return the investors' funds and paid a $18.5 million settlement fine in May 2020.

Although the Telegram team ostensibly halted on-chain development, a new group of developers gathered around the project under the name NewTON (later renamed TON Foundation) and continued development diligently, focusing on staying true to the design principles set out in the whitepaper, namely its "blockchain of blockchains" structure. Meanwhile, starting from 2020, all available TON coins could be mined through the "Giver" smart contract using a Proof-of-Work (PoW) system, with CPU mining lasting from 2020 to 2022. We note that while this distribution method was intended to promote decentralization and increase fairness, research clearly indicates that the majority of the supply was mined by insiders or addresses closely related to the TON Foundation within 2 months (July to August 2020), with 248 closely related addresses mining 85% of the coins.

Token allocation by giver smart contract type

Large miner groups divided by mining duration

The TON Foundation has played a crucial role in influencing the price of TON tokens to date, crucial to the project's success. Since its inception, its funding has primarily come from grants obtained from the initial mining efforts and recent locked over-the-counter (OTC) sales to professional investors. To strengthen its strategic direction, the TON Foundation announced a partnership with Telegram in September 2023, guided by a core team led by Anatoliy Makosov. This collaboration marks a key step in the continued development of TON and its market positioning in the broader crypto space, reinforcing the bullish case for TON, providing a coherent, central driving force that effectively impacts and boosts the token price.

Current TON Ecosystem

TON currently consists of four main components: TON Blockchain, TON Payments, TON Proxy, and TON Storage (decentralized storage). The TON Blockchain is a general-purpose blockchain with a standard execution layer that allows permissionless transactions. TON Payments is a low-cost micro-payment platform that enables instant, fast payments between users. It is currently accessible through the @wallet bot on Telegram, benefiting from in-app convenience. TON Storage allows for storing and distributing files on TON, similar to a decentralized Dropbox. Finally, TON Proxy ensures censorship resistance by allowing users to run .ton websites independent of fixed IP/centralized domains. These four components have a rich roadmap ensuring future cross-compatibility and connectivity.

Due to the combined and coordinated efforts of the TON Foundation, Telegram, and their partners, the on-chain ecosystem has seen explosive growth in recent weeks. Most notably, in April, we saw Tether announce direct integration into TON, allowing for native coin minting and redemption, providing possibilities for deep decentralized exchange (DEX) liquidity and further capital inflows. The TON Foundation is also running various liquidity mining incentives, including around 11 million TON reserved for DeFi liquidity providers (approximately $50 million). In addition to specific incentives for DeFi, the foundation is running a broader on-chain incentive program totaling over 30 million TON. The result is an explosive growth in the Total Value Locked (TVL) of TON pricing, reaching 30 million in April 2024, a six-fold increase from the beginning of the year. We note that DeFi TVL is typically quite opportunistic, and some capital may flow out once the rewards end in June 2024.

Significant growth in DeFi TVL since incentive measures were announced

Dedust and StonFi represent the largest share of TVL on TON (>90%)

Given that DeFi liquidity mining is ultimately a solved game and has seen multiple iterations in other alt-L1s in the past, we believe the true value of these incentives lies in Telegram's ability to incentivize app users to interact with TON in other more correct and more segmented market ways. The current incentive programs reward projects that attract users through viral gaming mechanisms like NotCoin (a simple but addictive click-based app with over 3.5 million daily active users). These incentives are followed by completing in-app tasks (such as minting NFTs and

The reward for the DNS name, as well as the liquidity mining for the largest decentralized exchange (DEX) on TON mentioned at the end. The ultimate goal here is to gradually introduce and familiarize Telegram's fixed user base with the on-chain 'workflow' using TON's existing distribution channels.

The goal of the open League Incentive program is to attract and maintain a sticky on-chain TON user base.

With TON's incentive mechanism driving, blockchain activities have seen significant growth in various metrics.

• Trading volume increased by 10 times: Since March 2024, the trading volume has increased from 200,000 transactions per day last year to 2 to 4 million transactions per day.

• On-chain activated wallet count increased by 3.6 times: From 600,000 addresses in January 2024 to 3.5 million by the end of April.

• Daily Active Wallets (DAWs) grown to six figures: DAWs are now around 160,000, a significant increase from 30,000 at the beginning of the year.

• TON daily fees range from $50,000 to $250,000: Half of TON's fees are burned.

Although these increased numbers themselves may be symptoms of non-organic and non-sticky on-chain participation, the rapid growth and activity of the ecosystem are significant compared to historically smaller incentive programs (such as the $180 million plan with Avax in 2021), and whether the ecosystem can maintain this level of activity and total locked value (TVL) after the incentive period should be continuously monitored.

The thriving TON ecosystem

Overview of TON's Token Economics

The basic argument of the article is that TON has healthy token economic characteristics. Despite the relatively high valuation, with a Fixed Dilution Value (FDV) of $24 billion and a circulating market cap of $16 billion, the TON Foundation and its affiliates tightly control a large supply, the network's low inflation rate, and systematic off-chain trading sales to distribute supply to investors, all of which are positive factors.

The current total supply is 5,107,343,180 tokens (5 billion at issuance), with an initial distribution ratio of 85% of tokens allocated to users and 5% to validators. The chain's inflation rate is 0.6% per year, with rewards paid to validators to maintain consensus. Taking a closer look, we note that about 1.3 billion coins are locked in a smart contract (called the "Believers Fund"), locking over 20% of TON supply until October 12, 2025, with monthly unlocks thereafter, lasting for three years. The total includes about 1 billion TON locked by users and 284 million TON used for rewards.

The Locker smart contract on TON

In addition to the Locker contract, the TON Foundation has also deactivated about 1.1 billion TON held in large early miner wallets that have had no outgoing transactions for 48 months. The result of these two measures 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 cap is around $8.5 billion.

It is difficult to accurately assess the dollar value of locked OTC coins sold, but according to public statements, at least $30 million worth of tokens have been sold to risk and professional investors:

• MEXC Ventures made a "seven-figure" investment in TON in October 2023.

• Animoca Brands became the largest validator on the TON network in November 2023.

• Mirana Ventures supported TON tokens with $8 million in March 2024.

Although TON is still in its early stages of adoption, its value accumulation narrative is relatively weak. However, with the continued growth of on-chain activities and the mechanism of burning 50% of TON fees, this situation should improve. A fee burning mechanism similar to EIP-1559 for TON has been launched.

The fee burning mechanism similar to EIP-1559 on TON

More importantly, Telegram is actively developing practical uses for TON tokens as a "token aggregator" to enhance its value. For example, Telegram recently announced that it will exclusively use TON tokens for advertising payments. In this setup, advertisers use TON to fund their marketing activities, with revenue split between Telegram and content creators. Additionally, Telegram has started accepting TON for payment of Telegram Premium, a service provided through Fragment Store, which currently has 5 million subscribers. These initiatives demonstrate the deliberate efforts of the Telegram team to ensure that TON is a token with practical utility and a clear value accumulation mechanism.

Reasons to Invest in TON

Concentrated supply and undervalued L1

The annual inflation rate is moderate at 0.6% (lower than Bitcoin), with relatively low mid-term liquidity, given that about 50% of the supply is locked in the Believers Fund and inactive miner wallets, plus about 86% of mined coins are controlled or at least associated with the TON Foundation. Additionally, most attention and locked OTC coin investments are completed by Asian participants, indicating a disadvantage for EU/US participants. The significant recent surge in the past two months has been primarily driven by Asia.

The significant recent surge in the past two months has been primarily driven by Asia

From a technical perspective, the coin's current trading price is 2-3 times that of the beginning of this year and the 2023 low. Compared to similar products like SOL, AVAX, and NEAR, the increase has been relatively moderate, making the downside risk more apparent.

Clear market entry strategy and long-term vision

The grand vision of building Web3 super apps directly from mobile convenience, with the potential to compete with WeChat. This marks a fundamental shift from the current state of many crypto blockchains and DApps serving speculators and tech elites, which are fundamentally a smaller Total Addressable Market (TAM) and should therefore receive lower valuations. Tether provides flexible support through its integrated announcement, and of course, also supported by Telegram through its strong roadmap on the TON blockchain, TON proxies, TON payments, and TON storage.

New growth opportunities

With approximately 3.5 million online activated wallets currently and Telegram's monthly active user count at 800 million, expected to reach 1.5 billion in the next five years, this represents a substantial and natural Total Addressable Market (TAM) upper limit. The TON Foundation strategically aims to attract 30% of Telegram's monthly active users in the next 3-5 years. If Telegram can convert at least 0.2% of its 200 million daily active users, its daily active user count will surpass Ethereum's current approximately 400,000. This is clearly a significant opportunity for user base expansion.

Specific positive catalysts in the cryptocurrency space

In the past few months, TON's daily trading volume has exceeded $170 million, and a listing on Binance's spot market could significantly reduce investment risk and provide some upside potential and more downside protection as liquidity increases. With Ethereum continuing to advance its sharding roadmap, TON is expected to gain further attention with its dynamic sharding architecture, although this comparison may be somewhat strained.

Risks and Mitigation Measures

• There is a question about whether the project can maintain its current valuation. This ambitious project seems to be approaching full valuation. At these levels, the chain and the native Gas token should function as currency rather than tools for technical speculation. It is more difficult to obtain a currency premium than a technical premium, which is essentially more short-lived.

• Further exploration is needed on the details of TON's OTC trading, as it may become a choice for marginal price setters to purchase discounted OTC tokens, reducing buying pressure in the public market.

• Due to the somewhat obscure programming language (FunC), developer participation in TON is lower compared to other chains. TON has 39 full-time developers and around 120 monthly active developers, whereas ETH has 2.4 thousand full-time developers and 7.8 thousand monthly active developers.

• The unlocking of Believers Fund's supply will begin in October 2025, although this will be done gradually over a period of three years.

• Regulatory risk remains a factor. However, we believe that given the previous experience with the SEC, most of the risks have been reduced. Telegram is clearly making efforts to integrate the tokens into the platform, and it is reasonable to expect that Telegram has conducted a comprehensive legal due diligence to ensure that its current and future TON operations comply with necessary legal requirements.

Summary

We believe that most of TON's growth will not come from on-chain users captured by existing EVM and Rust-based blockchains. TON is paving the way for a more orthodox future, opening up its niche market to consumers who value super-fast, extremely convenient decentralized solutions that prioritize capital mobility and anti-censorship in the new blockchain. In the long run, comparing TON to BNB with a market value of $9 billion is a reasonable and realistic goal, providing significant room for BTC's excess returns to rise.

　　Disclaimer: Includes third-party opinions. No financial advice. See Risk Warning.