TON: Project Analysis

In July 2024, Toncoin ranks 8th in the cryptocurrency rankings with a market capitalization of $18 billion and a circulating supply of 2.5 billion coins out of a maximum of 5.1 billion. The TON blockchain stands out for its unique multi-level architecture that combines the main chain (Masterchain) and multiple workchains, enabling high performance and scalability.

In today's token analysis. the spotlight is on TON. We will explore the origin story of TON, the tokenomics of Toncoin (TON), the potential of The Open Network(TON), opportunities for the industry players, and the threats looming over the project.

Toncoin, formerly known as Gram, is the native cryptocurrency of The Open Network (TON). It is a decentralized layer-1 blockchain initially developed by Telegram in 2018. The Durov brothers (Pavol Durov and Nikolai Durov) are credited as being the co-founders of the Toncoin project and are also the co-founders of Telegram. After facing regulatory challenges in 2020, Telegram abandoned the project, leading to the formation of the independent TON Foundation to continue development based on the open-source code run by a dedicated developer community.

In December 2021, Pavel Durov, the CEO of Telegram, published a post on his official Telegram channel endorsing the TON blockchain spin-off project, Toncoin. Durov expressed his support for the independent developers who continued working on the open TON project after Telegram abandoned it due to regulatory challenges. He emphasized that Toncoin is independent from Telegram but wished the team success in building something epic.

This endorsement from Durov was a surprising move, as Telegram had never commented on projects using its abandoned blockchain code before. However, Durov's statement left open the question of Telegram's involvement with Toncoin, which could have violated the ban imposed by the U.S. Securities and Exchange Commission (SEC) on launching any crypto tokens until 2023.

In February 2024, Telegram introduced an advertising revenue-sharing system for channel owners that pays out exclusively in Toncoin. This move boosted Toncoin's adoption, as Telegram channels generate over 1 trillion views per month, and owners of public channels with at least 1,000 subscribers stand to receive 50% of the revenue generated from the display of ads in their channels.

These developments demonstrate the gradual re-integration of Toncoin into the Telegram ecosystem, despite the initial separation and Telegram's withdrawal from the project in 2020. The partnership has not only boosted Toncoin's adoption but also increased its visibility to Telegram's vast user base of over 900 million individuals.

TON employs a multi-level architecture that combines the main chain (Masterchain) and multiple workchains. The Masterchain acts as the central hub, responsible for coordinating the overall network and validating transactions. Workchains, on the other hand, are specialized chains that handle specific tasks or applications, such as payments, smart contracts, or storage.

This multi-level structure allows TON to achieve high performance and scalability. Workchains can process transactions in parallel, reducing congestion and increasing throughput. The Masterchain ensures the overall integrity and consistency of the network by validating the work of the workchains.

TON utilizes a hybrid consensus mechanism that combines Proof-of-Stake (PoS) and Byzantine Fault Tolerance (BFT). In this system, validators stake their Toncoin to participate in the validation process. The more Toncoin a validator stakes, the higher their chances of being selected to validate a block and earn rewards.

The BFT component ensures that the network can tolerate a certain number of malicious or faulty validators. It enables the network to reach a consensus even if some validators behave dishonestly or fail. This hybrid approach provides a high level of security while maintaining fast transaction finality.

TON employs sharding to achieve scalability. Sharding is a technique where the network is divided into multiple shards, each responsible for processing a subset of transactions. This allows TON to handle a large number of transactions simultaneously, as each shard can process transactions independently.

TON supports smart contracts, which are self-executing programs stored on the blockchain. Developers can create complex applications and decentralized services using TON's smart contract functionality. The TON Virtual Machine (TVM) is a high-performance virtual machine that executes these smart contracts.

In 2018, Telegram conducted the largest ICO in history, raising $1.7 billion from investors to fund the development of TON. The ICO was a resounding success, attracting interest from both, the institutional and the individual investors who believed in the project.

However, the project faced regulatory hurdles when the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Telegram in 2019, alleging that the company violated securities laws by not registering its token with the regulatory agency. As a result of the legal battle, Telegram was forced to terminate its plans for the TON blockchain in 2020 and refund the $1.7 billion raised during the ICO to its investors.

Despite this setback, the TON project was resurrected by a new development team, the TON Foundation, which joined forces with the original developers to support the newly built TON blockchain. In September 2023, Telegram integrated a TON wallet into its messaging app, exposing its vast user base of 800 million active users to the cryptocurrency.

In 2024, the TON Foundation distributed 30 million TON among users to enable them to participate in various ecosystem projects. This initiative, along with Telegram's plans to use TON for paying out financial rewards to channel owners and launching internal payments within the app, has generated significant interest in the cryptocurrency

Several prominent venture capital firms have invested in the TON project, recognizing its innovative technology and potential for growth.

• Pantera Capital: First digital asset investment fund in the US. The company has raised over $1.25 billion across multiple blockchain funds and is one of the largest digital asset managers in the world

• DWF Labs: DWF Labs is a global digital asset market maker and multi-stage Web3 investment firm. They have backed projects like Conflux, EOS, Theta Network, and many more.

• Animoca Brands: Animoca Brands is a Hong Kong-based company that has made significant investments in NFT-related companies and has partnered with various organizations to promote the adoption of blockchain technology.

Toncoin has raised more than 24m$ according to the publicly disclosed funding rounds since 2021. The specific amounts and investors involved in TON's later funding rounds are not publicly reported. However, the multiple rounds of funding demonstrate that Ton has been able to attract significant investment as it has progressed through the various stages of development for a blockchain platform.

TON blockchain offers several unique features that set it apart from other blockchain platforms like Ethereum. The developers of TON recognized the limitations of existing blockchain platforms in handling the scale and complexity of data generated by a global user base and set out to create a more robust and efficient solution. Some of the significant differences in TON when compared to Ethereum:

TON's rent vs Ethereum Gas

Unlike Ethereum, where users pay gas fees for transactions and contract deployments, TON smart contracts are responsible for covering their resource costs. The contract developer has the freedom to choose the mechanics to fund its operation.

TON blockchain's flexible fee model empowers developers to subsidize users, charge gas fees for specific actions, or come up with novel methods to fund the rent payments for keeping their resources on TON blockchain. Deploying data on Ethereum would cost you once, but keeping data on TON will cost you continuous rent as long as the data stays on blockchain.

TON looks focused on the scaling problem while Ethereum is focused on the security issue. Storing data on the TON blockchain would cost significantly less if it is kept for a short time. Miners have to bear the cost of 'eternal' data on Ethereum. On the other hand, unbounded data maps protect users from DoS attacks on Ethereum, while TON does not protect against spamming unbounded data structures in a contract state.

Mutable Smart Contract Code

Ethereum's smart contracts were designed to be immutable, reflecting this legal concept of contracts. However, over time, the developer community learned to overcome this limitation by using complex patterns, such as proxy contracts that point to different contracts to implement upgrades. This approach was necessary due to the immutability of the code.

TON, on the other hand, drops the pretense that contracts should be immutable. Smart contracts on TON are free to modify their code, just like any other state variable. If a contract writes to its code variable, it becomes mutable; if not, it remains immutable. This change in practice makes the cumbersome proxy pattern redundant, simplifying the process of upgrading and modifying contracts.

Everything is a contract on TON

The TON blockchain takes a fundamentally different approach to user wallets and accounts compared to Ethereum. On TON, wallets are not just simple addresses derived from public keys, but rather full-fledged smart contracts that must be deployed on the blockchain.

On Ethereum, a user's wallet is synonymous with their address, which is directly derived from the user's public key. This creates a 1:1 relationship between a public key and an address. As long as the user knows their private key, they can access their wallet without having to do anything special.

In contrast, on TON, wallets are independent smart contracts that must be deployed on the chain. When a new user wants to start using the TON blockchain, their first step is to deploy a wallet contract. The address of this wallet is derived from the wallet contract code and various initialization parameters, such as the user's public key.

The TON (The Open Network) blockchain, while offering innovative features and capabilities, is not without its risks and threats. Here are some key areas of concern:

Regulatory Uncertainty

TON has faced regulatory challenges in the past, particularly with the U.S. Securities and Exchange Commission (SEC) banning the initial Gram token offering in 2020. Although the project has since been redesigned and relaunched under community leadership, ongoing regulatory scrutiny and legal issues could impact the token's value and adoption.

Phishing Attacks

According to blockchain security firm SlowMist, the TON blockchain faces a high risk of phishing attacks. The entire TON ecosystem is currently under threat, as malicious actors may attempt to exploit vulnerabilities and lure users into revealing sensitive information or sending funds to fraudulent addresses.

Wallet Security

TON's unique approach to wallets, where they are independent smart contracts that must be deployed on the chain, introduces additional security considerations. Users must be aware of their specific wallet addresses and take measures to protect their private keys. If a wallet is compromised, the user's funds could be at risk.

Immature Ecosystem

As a relatively new blockchain, TON's ecosystem is still maturing. The platform may face technological challenges or security vulnerabilities that could affect its performance and user trust. Developers should be cautious when building on TON and stay informed about any potential issues that may arise.

Concentration of Toncoin

The top 3 addresses hold a staggering 48% of the total Toncoin supply. The top 100 addresses account for over 80% of the total Toncoin supply, indicating a high degree of centralization. The high concentration of Toncoin holdings in the hands of a few addresses raises several risks and implications for the TON ecosystem:

1. Centralization Concerns: The dominance of a small number of addresses in the token supply undermines the decentralized nature of the TON blockchain. This could lead to concerns about the network's resilience, as a small group of actors could potentially exert undue influence over the system.

2. Market Manipulation: The large holdings of Toncoin by a few addresses increase the risk of market manipulation. These entities could engage in activities like price manipulation, wash trading, or hoarding, which could negatively impact the token's price stability and overall market dynamics.

3. Governance Challenges: The concentration of Toncoin holdings may also create challenges in terms of governance and decision-making within the TON ecosystem. A small group of token holders could have an outsized influence on the direction and development of the network.

The Toncoin (TON) blockchain has been making significant strides, showcasing its potential to become a leading player in the decentralized ecosystem. Several key developments and partnerships have positioned TON for a promising future.

Polygon X TON

The TON (Telegram Open Network) blockchain ecosystem is set to broaden its reach and capabilities through a strategic partnership with Polygon, a leading Ethereum scaling solution provider. TON has announced the launch of the TON Application Chain (TAC), a new layer-2 network built on Polygon's technology.

This integration aims to bring the TON ecosystem closer to the broader Ethereum landscape, enabling seamless access to decentralized applications (dApps) and services. TAC will leverage Polygon's Chain Development Kit (CDK) and AggLayer interoperability protocol to build its layer-2 solution.

Tap-to-Earn

The TON blockchain has recently seen the emergence of an innovative gaming model known as "Tap to Earn." This concept, exemplified by the success of the Hamster Kombat game, showcases the platform's ability to seamlessly integrate gaming and cryptocurrency rewards, driving user engagement and adoption.

Hamster Kombat, a play-to-earn game built on the TON blockchain, has gained significant traction within the TON ecosystem. The game's unique "Tap to Earn" mechanic allows users to earn Toncoin (TON) rewards simply by interacting with the game's content on Telegram channels. The game has surpassed 250 million users at the time of writing and is poised for exponential growth.

The pioneer in the tap-to-earn genre is Notcoin. This project was launched in January and quickly became a sensation, amassing over 35 million players and 6.5 million daily active users. The game's classic tap-to-earn mechanism, where players collect coins by completing tasks and engaging with in-game bots and boosts, has proven to be a hit. Another such recent project is TapSwap, which has garnered 60 million users by early July 2024.

The integration of Tap to Earn mechanics with the TON blockchain represents a significant step forward in converging gaming and decentralized finance (DeFi). By seamlessly incorporating cryptocurrency rewards into a user-friendly gaming experience, Hamster Kombat, and similar Tap to Earn games on TON are lowering the barriers to entry for mainstream users to engage with blockchain-based applications.

The TON (The Open Network) blockchain has made remarkable progress since its inception, positioning itself as a promising player in the decentralized ecosystem. Despite facing regulatory challenges in the past, TON has been able to attract substantial investment and support from prominent venture capital firms, demonstrating its potential for growth and innovation

One of TON's key strengths lies in its unique multi-level architecture, which combines the main chain (Masterchain) and multiple workchains. This approach allows TON to achieve high performance and scalability, enabling it to handle a large number of transactions simultaneously. Additionally, TON's support for smart contracts and its flexible fee model empower developers to create complex applications and decentralized services.

However, TON is not without its risks and potential threats. Regulatory uncertainty, phishing attacks, wallet concerns, and the immaturity of the ecosystem are some of the key challenges that TON must address. The high concentration of Toncoin holdings in the hands of a few addresses also raises concerns about centralization and potential market manipulation.

Despite these challenges, TON has been making significant strides in expanding its ecosystem. The partnership with Polygon to launch the TON Application Chain (TAC) is a promising development that will bring TON closer to the broader Ethereum landscape. Moreover, the emergence of innovative gaming models like "Tap to Earn" on the TON blockchain has the potential to drive user engagement and adoption by seamlessly integrating gaming and cryptocurrency rewards.

As TON continues to evolve and address its challenges, it has the potential to become a leading player in the decentralized ecosystem. With its innovative features, partnerships, and the growing adoption of its "Tap to Earn" gaming model, TON is well-placed to capitalize on the increasing interest in blockchain technology and decentralized applications