A World Beyond Ads With the Help of the TON Coin
Social media and messaging have become a core part of the internet and the modern human experience. Facebook, the world’s largest social network, announced earlier this year that it plans to release a private currency, though this has run into trouble with regulators around the world. On the other hand, the announcement of a cryptocurrency by the messaging application Telegram, the Telegram Open Network, or TON coin, has been relatively hassle-free. The launch date of this coin is expected in late October 2019. With Telegram’s ability to leverage over 300 million active users, along with pre-existing networks and systems to take advantage of the fact, we believe that a native cryptocurrency for social networks have the potential to massively change how the network functions from a business perspective, as well as boost revenue and margins on a long-term scale.
Paid advertisements are currently the main revenue source for most social networks and messaging apps.
When this native cryptocurrency is introduced (native meaning a cryptocurrency fully integrated with the app and requiring no additional software to use) to Telegram, it will herald the launch of a new crypto-based economy. Existing revenue can then be supplemented with payment commissions on cryptocurrency. These payment commissions will be taken from purchases using telegram tokens, made by users for digital and physical goods such as paid content, subscriptions, or additional features. This could be sold either by merchants, or by Telegram itself.
This article will examine the assumptions stated above by looking at a business case for the telegram coin, known as the Gram, and analyzing the consequences the gram coin may bring to Telegram’s margins and revenue.
A Case Study for Gram Coin
Despite the popularity of cryptocurrency, they have yet to deliver on a core promise – the ability to be used for ordinary transactions, like paying bills, buying groceries, and otherwise everyday tasks. Not a single cryptocurrency, (including the market leader Bitcoin) has reached mainstream adoption – instead, they have remained mostly a speculative investment. Existing cryptocurrencies are almost solely used by traders and investors instead of consumers.
Telegram wants to fix that. The core of its vision is to create a crypto economy, based on the gram token, for its estimated 2022 user base of 1 billion users. This would truly make the TON Coin a cryptocurrency that’s used by all.
Telegram is in a unique position to launch the first massively adopted cryptocurrency – beating out Facebook’s Libra, which, aside from regulatory issues, is too centralized to be called a proper cryptocurrency. Telegram’s current userbase of 365 million represents an amount large enough to self-sustain a crypto economy, and draw in new users.
In 2018, Telegram raised $1.7 Billion in its ICO, which became the second-largest (nongovernmental) ICO ever conducted. Funds raised during the ICO were intended for investments in the development of Telegram Open Network (TON) and related blockchain, peer-to-peer, distributed storage, and service hosting technologies.
For the Telegram token’s development, and the development of crypto and blockchain technology as a whole, including TON, Telegram conducted the world’s second-largest nongovernmental ICO in 2018. It raised $1.7 billion, all of which was invested in the Telegram Open Network.
The Roadmap presented to ICO investors set Telegram’s primary milestone as the creation of a crypto, TON coin economy in the messaging network.
Exhibit 1: The TON and Telegram’s Technical Roadmap
The Whitepaper for the Telegram Open Network, as well as the recent source code for the network, provides a complete look at Telegram’s plans for the cryptocurrency. They define the milestone as the launch of the Telegram wallet as an integrated portion of the Telegram app, as well as the introduction of the gram token.
This token, the telegram coin or the Gram, will be a cryptocurrency used on the TON blockchain. Users will be able to use it precisely as they would any other currency, by making peer-to-peer purchases and sales within Telegram. Gram will form the bedrock of the TON blockchain and economy.
Our research has shown that the Gram coin has the potential to become Telegram’s core revenue stream and provide Telegram a way to pivot from the non-profit model to a highly profitable business.
Telegram Coin Predicted Revenue
The TON Coin may generate incremental net revenue of up to $4 billion by 2022 if it reaches mass adoption.
It is assumed that by Jan 1, 2022 Telegram will achieve 1 billion monthly active users (MAU), of which 80% or 800 million MAU will be actively transacting in Grams. The net annual revenue per user will constitute $5.
The assumptions underlying these estimates are:
- 1 billion monthly active users in Telegram by 2022
- 80%, or 800 million users actively using the telegram token
- Net annual revenue per user reaches $5
The first important assumption here - an estimate of 1 billion MAU by Jan 1, 2022 - is derived from the Telegram’s ICO investors presentation and was set by the Telegram team. It implies a 50% annual growth rate in MAU, starting from an actual value of 200 million MAU in 2018. We believe this assumption is realistic and achievable.
The first, and perhaps most important assumption is that Telegram will gain 1 billion users by 2022, representing a nearly 300% increase in users from today. However, this should be achievable for Telegram, as Telegram believes, according to ICO presentations, that it can maintain a 50% annual growth rate in monthly active users.
The second assumption of $5 net annual revenue per user was derived by industry research into comparable company analysis. By comparing two major payment processors – WeChat, a mainly Chinese messaging app that includes payment processor functionality, and Google Pay, it has been possible to estimate revenue numbers for the gram token.
WeChat, in particular, bears the closest resemblance to Telegram, as it is both a messaging app and a payment processor. However, there are some key differences – WeChat does not issue its own currency, crypto or otherwise. However, as a goal for Telegram, it is a perfect fit for comparative analysis. Wechat has an estimated 1 billion users already, and it has a 40% market share in mobile payments in China.
Our estimates show that WeChat Pay generated approximately $5.60 net revenue per user in FY 2017. During that year, it processed $8.5 trillion of mobile payments globally and on average, earned 0.06% per transaction. This produced $5.1 billion in net revenue in 2017 for WeChat Pay.
Exhibit 2: Operating and industry data for WeChat
Google Pay, the other comparison in this analysis, earns $6 in net revenue per user according to the latest research.
Looking at the numbers for both Google Pay and WeChat Pay suggests that $5 net revenue per user is a reasonable assumption for Telegram and the TON coin.
This allows us to build a revenue forecast of $4 billion by 2022 by multiplying by Telegram’s own monthly active user projections (see below).
Exhibit 3: Forecast of MAU and budgeted use of ICO funds, by Telegram
Net profit goes into the black starting from FY2020, and that’s with considering budgeted operating expenses and capital expenditures. Telegram is a cost-efficient company, meaning that Telegram’s margin of safety and earning power is high, and that will directly translate into equity for holders (those who have gram tokens).
Exhibit 4: Projected operating data, income and expenses for Telegram
Once the TON blockchain is released, the telegram tokens purchased during Telegram’s $1.7 billion ICO will immediately be converted, 1 to 1, to Gram coins. The market value of TON coins will be directly impacted by the growth and profitability of the Telegram Open Network, meaning that coin holders will be incentivized to create and sustain the TON economy. This means that gram coins are an attractive investment opportunity.
Exhibit 5: Extract from the ICO investors presentation, Telegram
While it is difficult to precisely estimate the exact growth and IRR numbers that would prove TON investment quantitatively, we can still draw three main conclusions:
1. The TON coins’ ambitions of becoming a mass adopted cryptocurrency can be realized by leveraging Telegram’s estimated 365 million-strong user base, giving the critical mass necessary for widespread adoption.
2. Because the Gram wallet will be integrated into the Telegram application itself, on the launch, it will instantly become the world’s most adopted crypto wallet.
3. Dependent on Gram adoption, Telegram could see a stable revenue stream created. It would then also become the organization’s primary revenue factor in the long-term. Cumulative revenue over 3 years (2020-2022), even with conservative assumptions, may total up to $6.3 billion.
The Gram Token Represents a new Monetization Model
The introduction of Gram tokens on the Telegram Open Network will create an entirely new economy with goods and services sold and priced in Grams. Like WeChat’s marketplace, but without the reliance of fiat, it will provide secure, stable, and scalable blockchain transactions. According to the whitepaper, this represents up to millions of transactions per second.
Similar to WeChat Pay’s revenue stream of $5.1 billion per 900 million MAU, Telegram’s TON Coin will be perfectly positioned to generate up to $4 billion per its 1 billion MAU by 2022. Moreover, due to Telegram’s forecasted high net profit margins, compared to WeChat, Telegram is expected to provide a substantially higher return on investment to its token holders.
Telegram’s predicted net profit margins are expected to be higher than WeChat's, providing token holders a high return on investment. The TON coin has the capability of creating up to $4 billion in revenue on 1 billion monthly active users by 2022, compared to WeChat Pay’s revenue of $5.1 billion on 900 million.
Investors who participated in Telegram’s ICO are expected to benefit significantly from predicted market price appreciation of the Gram token as their ICO participation will directly translate to Gram tokens.
Telegram, unlike many social networks, is a non-profit, and according to their FAQ, they currently fund themselves thanks to donations from their founder and ICO funding for TON development. However, if Telegram’s model, compared to Facebook’s Libra, pays off, then other social networks may try to launch their own native cryptocurrency. Moreover, if the numbers projected in this case study proves to be accurate, then payment processing revenue will result in an entirely new revenue stream. Currently, the advertising-based model is widely used across the internet. However, given an entirely new revenue stream that no longer depends on ads, social networks, apps, and internet websites, this may mean a move away from ad monetization, and onto a radically new vision for the internet.
Prepared by:
Monfex Research Department
10/09/2019
Disclaimer
This report is for information purposes only and should not be considered a solicitation to buy or sell any cryptocurrency or cryptocurrency product. Monfex accepts no responsibility for any consequences resulting from the use of this material. No representation or warranty is given as to the accuracy, timeliness, or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. © 2019 Monfex. All Rights Reserved.
