What is TON (Previously known as Newton)?

TON (The Open Network), is another new L1 on the market that was originally developed by the Russian social media company Telegram. This new L1 chain is a fork of the original Telegram’s TON project that was eventually shelved in 2020 after facing regulatory hurdles.

TON was designed to be a  blockchain of blockchains aimed at helping the network in scaling and connecting multiple chains together. This idea is somewhat similar to Cosmos’s IBC system. The network claims that it is capable of achieving up to 1m TPS.

Achieving 1m TPS

TON takes the concept of sharding to the extreme. TON terms this design as the Infinite Sharding Paradigm.  The MasterChain and Workchain can theoretically be split into  2^(32) WorkChains and  2^(60) ShardChains respectively.

If there are too many transactions to be processed and stored in a node, each ShardChain can be split into two smaller ShardChains to allow each of these 2 new smaller ShardChains to be processed on a separate subset of nodes, thus removing the bottleneck. Similarly, if multiple ShardChains are not fully filled, they can be merged into a single bigger ShardChain. This dynamic splitting and merging design aims to reduce congestion and improve capacity.

Competitive Market with Questionable Market Demand

The TON blockchain uses sharding and a cross-shard communication system to increase its capacity for processing transactions. However, the more sharding that is implemented, the more complex the data structure becomes, which may make it more difficult for new developers to adopt and work with TON's technology compared to EVM chains that have already been widely accepted and tested by the community with greater security. Furthermore, whether there is a fundamental need for a network to achieve such high TPS numbers (1m TPS) is still unknown.

Integrations and Partnerships

CertiK

CertiK monitors and analyzes smart contracts on the TON network to identify potential security risks. The firm has also audited multiple components of TON including vesting contracts, TON Bridge, and the TON base layer.

Builder Incentives

The first 4 growth funds appear to be well-capitalized to attract builders into the ecosystem.

• Industry Recovery Fund

The TON foundation alongside a group of independent investment partners announced a soft commitment of a $126m fund in Nov 2022 to help rescue crypto industry projects, a plan that closely resembles that of Binance’s own $1b industry recovery initiative. The fund’s purpose is to attract companies to build on TON in the future and support existing projects that are experiencing liquidity challenges in the current challenging economic climate.

• TON Foundation $1b Growth Fund

The TON foundation received a donation of  527m TON tokens from its users which was worth $1b at that point in time. Based on today’s prices (16 Jan 2022), the fund is worth an estimated $1.21b. There is no plan to offer an incentive for these donors.

Applications

The TON ecosystem is still relatively underdeveloped and lacks interesting primitives.

Native DEX

• TonSwap
• STON.fi - AMM DEX

Bridges

• TON <> ETH Bridge
• TON <> BNB Bridge

Utilities

• Tonstarter
  • First launchpad on TON
• Testnet Faucet for TON

Explorers

• Tonapi

Wallets

• Custodial wallets: @wallet feature directly on Telegram
• TON can also be exchanged via @cryptobot
• Non custodial wallets like Tonkeeper

Brief Description of other TON Components

Distributed Storage (TON Storage)

• Store archived blocks and status data
• Store encrypted files anonymously

P2P Network

• Used for accessing TON blockchain and sending/receiving specific data on the chain

Anonymizer Layer (TON Proxy)

• Hides identities and IP addresses of nodes if necessary. Enables greater privacy and preventing DDoS attacks

Arbitrary Services (TON Services)

• Provides interfaces enabling browser-like and smartphone application interactions

DNS (Similar to ENS)

• Human-readable names to accounts, smart contracts, etc

Distributed Hash Table

• Enabling above-mentioned TON Proxy and TON Services.

TON Payments

• Payment channel network. Can be used for fast off-chain transfers.

Virtual Machine

• TON VM (TVM) used to execute smart contract code in the MasterChain and in the WorkChains

Cross-ShardChain Communication

• TON’s Instant Hypercube Routing enables messages to be transmitted in a block from one ShardChain into another, regardless of the total number of ShardChains in the system.

Performance

• Ethereum 2.0 data not including scaling solutions such as sharding, sidechains, rollups, etc. Source: Ton, Etherscan, EthTPS, SolanaFM, Solana Explorer, Dragonfly Capital, Tonhouse

As expected, existing throughput performance is significantly lower than the network's advertised TPS potential.

Validator Requirements

TON's high hardware validator requirements are comparable with its direct high bandwidth incumbents like Solana and Aptos. On average, 600,000 TON tokens (~$1.32m) are staked by TON validators which is significantly higher than other chains. However, TON’s delegated staking should help with smaller players' participation.

TON Token

Tokenomics

TON is the native token of The Open Network.

In June 2020, all of the TON tokens (98.55% of the total supply) were made available for mining. The tokens were placed in a smart contract which allowed anyone to participate in the mining. The duration of this mining took place from June 2020 to June 2022, when users mined around 200k TON daily. The PoW mining process has now been halted and the network has since switched to Proof-of-Stake.

Given the large volume of TON tokens already mined, its inflationary design, and the lack of activity on-chain makes TON a fundamentally less appealing token from a tokenomics perspective.

Original supply, mining rewards, and inflation:

The total supply is initially limited to 5b TON. The token is inflationary by nature with no ceiling. The number of tokens available will gradually rise as more validators join the ecosystem and earn more rewards. This happens as more masterchain and shardchains accumulate. The inflation rate is currently set at 0.6% per year. Misbehaving validators will have a part of their staked TON tokens taken away with the majority of it being burned.

Token Distribution (WTON on Ethereum)

Both FTX withdrawer and Dragonfly Capital currently own ~62% of the total WTON on Ethereum which is worth ~$27.1m.  Note that the daily trading volume for TON is at $26m across all chains. So far, these two entities have yet to reduce their TON holdings.

Smart Money Holdings (WTON) Apart from Dragonfly Capital as mentioned above, Nansen Smart Money seems to have limited interest in holding TON tokens.

Network Figures

Comparing some figures of the TON ecosystem from the beginning of 2022 to present, the number of validators has increased from 155 to 228. The network accounts have also increased from 128K to 1.8m at the time of writing.

Bridging Activity

TON <> ETH via  https://ton.org/bridge/

Transactions for WTON picked up right after Telegram CEO’s tweet on 1 Dec 2022 on Telegram’s next steps to build a set of decentralized tools to onboard new users into the space.  As seen in the chart below, the WTON tokens on Ethereum have yet to gain any meaningful  adoption. In fact, the highest daily number of WTON transactions (574) happened on 14 Dec 2022, two weeks after Telegram CEO’s tweet. Even after more than a year since the chain restarted, WTON has been transacting at 50-70 transactions on average per day.

The chart below shows the number of transactions of WTON (TON that was bridged from TON chain to ERC-20 chain).

The subsequent days after the tweet also garnered somewhere between 200-500 total transactions per day, as activity slowly picked up. Despite the short-term catalyst and the run-up of TON’s price over the last 30D, transactions have been falling to lower levels between 70-100 transactions per day. It is evident that the pool of users in the overall TON network is still small and has yet to gain any real traction.

Users refer to the addresses that have sent or received Wrapped TON tokens on ERC-20 as a proxy for total transactions including bridging activity from TON to the Ethereum network.

TON <> BNB Chain via https://ton.org/bridge/?fromNetwork=ton&toNetwork=bsc

The chart below shows the number of transactions of TON on the BNB chain.

Transactions for TON on BSC were generally volatile from October 2021 and throughout early 2022. It quickly died down and remained relatively flat throughout the entirety of 2022, and only picked up in light of Durov’s statement on Telegram. It is clear that although the announcement was a short-term catalyst for the network, it was rather short-lived.

Recent News

• Telegram has sold more than $50m in usernames on the Open Network according to the founder and CEO Pavel Durov as of 30 Nov 2022
• For example, the username @news was auctioned for 994,000 TON (~$1.7m). Top auctions are available on their website here: https://fragment.com/?filter=sold. All the usernames were sold via Fragment platform, a platform that secures name ownership on the blockchain. According to the CEO of Telegram, Durov, he mentioned that Fragment will expand beyond usernames and build a host of blockchain tools for Telegram including crypto wallets and DEXes. These services may potentially be accessed within the Telegram app.
• Following Durov’s tweet, the Fragment platform launched bidding for anonymous phone numbers on Telegram. The numbers have a code of +888 and are embedded as NFTs.

TON: A Potential “Reddit” Moment?

Reddit managed to onboard 5m users onto the Ethereum blockchain through NFTs.  While TON is an independent project, Telegram has publicly shown its support for the blockchain. With ~700m daily active users on Telegram, the Telegram username auction could potentially boost a new wave of users into the TON ecosystem. This could be a viable Web2 to Web3 pathway, given the angle of onboarding new users into crypto/ Web3. TON could follow the example of Reddit and seek to find the right product-market fit for its blockchain.

Bull Case

• Adoption may occur if Telegram manages to build an ecosystem that revolves around the TON blockchain. With 700m users on Telegram’s platform currently, TON has the potential to capture some of this enormous userbase. To put it into perspective, if Telegram can convert even 10% of their active users onto the TON blockchain, 70m users is significantly more than the number of users on most DeFi applications today.
• As Telegram continues to build more extensions to their existing mobile application (e.g: built-in wallets to facilitate payments on the app, etc.), it will enable a more sticky experience for users considering that most DeFi apps are only available on non-mobile interfaces. This is analogous to what Solana is building with their upcoming mobile stack.
• There is a healthy feedback loop for validators and users of the TON network. Transaction fees for the services on Telegram are paid in TON, creating fundamental value for the token as this will incentivize the validators that process transactions.
• Telegram’s DNS can mimic one of Ethereum’s ENS, especially in the community-building aspect. The network’s DNS service has sold more than $50m in usernames so far according to the founder. The most expensive usernames have been auctioned off for millions. Comparatively, ENS domains have only recently seen a sharp rise in domain registrations over the last 6 months. The most expensive ENS domain was sold for $2m. There are arguably more similarities than differences between ENS domains and TON’s DNS.
• More builders and innovators continue to build in the TON community. Last month, the TON Foundation and its ecosystem partners announced a $126m fund after the FTX fallout.

Bear Case

• Currently, the TON chain is intertwined with the success and development of Telegram. If the SEC continues to stand by its decision to prevent Telegram from being a part of the TON network, then the chain may face adverse consequences.
• High-TPS but no users.
• No real-world demand for TON’s high TPS potential.
• No real adoption causing builders to shy away from the TON blockchain. Currently, although there are quite a few applications built on the TON chain, most applications do not seem to be driving much user engagement thus far. If this continues to be the case, most builders will choose other chains over TON especially if there are no proper incentives for building on the chain.

Other Things to Consider

For more information on TON, users can head to their Twitter account, check out there featured games or see what their developers are up to here.

Conclusion