Telegram founder arrested in Paris. What does it mean for crypto?

Pavel Durov, founder and CEO of Telegram, was arrested on 24 August and charged by French authorities with several criminal offences linked to his role at the popular messaging platform. 

Following his court appearance, the 39-year-old Russian-born French citizen was released on a €5 million bail on 28 August but is barred from leaving France and must report to authorities twice weekly while investigations continue. Charges against Durov include facilitating illegal activities through the Telegram platform, money laundering, and refusing to provide information to authorities. Notably, a case involving allegations of child abuse, which had been dormant for over a year, has resurfaced, adding to his legal troubles. Facing up to 20 years in prison if found guilty, Durov denies these accusations, and Telegram maintains that it complies with local laws.

Crypto traders are watching the Durov situation closely. Telegram is a popular communications platform among the crypto community and is connected to an ecosystem of successful tokens, such as Toncoin (TON) and Notcoin (NOT), as well as recent crypto sensations, such as Hamster Kombat. Critics have also highlighted that Durov's detention attacks freedom of expression, a value dearly held by many crypto enthusiasts.

Pavel Durov's career and history with Telegram

Durov first gained prominence as the founder of VK (originally known as VKontakte), Russia's largest social network. After being ousted from VK, Durov turned his focus to Telegram, which he founded in 2013.

Telegram is a messaging app similar to WhatsApp and Messenger. It is popular across Russia, Ukraine, and other former Soviet states. Despite frequent requests from authorities, Telegram has historically not cooperated with law enforcement, emphasising its commitment to neutrality and user privacy.

Telegram quickly became a haven for users seeking secure communication, though its staunch refusal to share data with governments has drawn criticism and legal battles worldwide. According to reports from Telegram, it has taken action to shut down channels that are involved in illegal activities, such as drug or weapons trading. Still, its refusal to aid investigations by third-party organisations has drawn scrutiny and criticism.

The question that Durov must battle in the French courts is whether the platforms (and their owners) themselves can and should be held responsible for the activity of users or whether its ideals of libertarianism and decentralisation will triumph. Telegram has continued to grow despite these challenges, becoming one of the most downloaded apps globally.

Support for Durov

Durov's stance on privacy has made the platform both a symbol of digital freedom and a target for authorities concerned about its use in illicit activities. Supporters of the Telegram founder, including many luminaries from the blockchain, cybersecurity, and tech industries, have rallied behind the hashtag #FreeDurov on social media platforms.

Renowned NSA whistleblower Edward Snowden said Durov's arrest was "an assault on the basic human rights of speech and association". Snowden has accused France of effectively taking Durov "hostage" to gain access to private communications on Telegram.

Tron founder Justin Sun has pledged $1 million to a decentralised autonomous organisation (DAO) advocating for Durov's release, joining a wave of support from prominent figures including Elon Musk, Ethereum co-founder Vitalik Buterin, and former US presidential candidate Robert F. Kennedy, Jr.

French President Emmanuel Macron has continued to deny any political motives behind Durov's arrest, stressing France's commitment to protecting freedom of expression and communication.

How does Durov's arrest affect the Telegram Open Network (TON)?

Durov's arrest comes at a time when the fortunes of The Open Network (TON, formerly known as the Telegram Open Network), a blockchain project launched by Durov and originally linked to Telegram, are under scrutiny. Despite officially distancing from TON after a legal battle with the US Securities and Exchange Commission (SEC) in 2020, the project lives on in a decentralised form as a Layer-1 blockchain, with active development by independent teams.

Because many still perceive the project as connected to Durov's legacy, his legal troubles have sparked concerns about the regulatory climate for TON-related crypto tokens, affecting market sentiment and raising questions about the future of decentralised networks with connections to high-profile figures facing legal issues.

Durov's legal issues in France have cast a shadow over TON, affecting investor confidence and causing fluctuations in the prices of related crypto tokens. Some investors pulled out liquidity, further pressuring the market, while others remained committed to Durov's vision of a decentralised internet. Concerns about potential regulatory scrutiny and the legal entanglements of its perceived founder have led to increased volatility. The network has also faced technical challenges, including outages linked to DOGS (Decentralised Open Group Subsystems), highlighting the difficulties faced by blockchain projects in maintaining consistent service.

The fate of TON tokens

Following \Durov's arrest, Toncoin and Notcoin saw a drop of over 20%, largely due to their close ties with Telegram, where their integration has significantly boosted their adoption. Total value locked (TVL) on the TON network dropped nearly 40%, and Toncoin lost over $2.4 billion in value.

Despite the TON Foundation's assurance that the network remains strong, some investors have started to exit. A significant liquidity provider recently withdrew nearly $2 million from a Toncoin pool and sold 356,545 TON, leading to further price pressure. Identified as "Elite Uniswap V3 LP", the seller shifted funds into USDT and Ethereum. Conversely, some investors, like Andrei Grachev of DWF Labs, purchased TON to show support. Since Durov's arrest, the total value locked (TVL) in the network has fallen 38%, reflecting ongoing market instability and declining user activity.

These Telegram-related tokens have yet to recover and will likely continue to face turbulence as Durov's legal troubles progress. However, there's no need to write off Toncoin just yet, which has more than doubled its value since January.

Hamster Kombat, other TON projects remain optimistic despite Durov's arrest

Telegram has aimed to turn profitable by leveraging the TON ecosystem, which includes premium features, ads, and mini-apps such as Hamster Kombat, which are partly monetised in Toncoin. Introduced in 2020, these services have started generating substantial revenue, and Telegram's ad-revenue programme, launched in March, rewards channel owners in Toncoin for hosting ads, further solidifying TON's role in Telegram's financial strategy.

Despite Durov's arrest, TON-based projects are showing resilience. The Dogs token, associated with a Telegram game, successfully launched and began trading shortly after the arrest. Other Telegram-based games, including Hamster Kombat, continue to express support for Durov and his commitment to privacy, pledging to move forward with their plans. Platforms like Time Farm and leaders in the crypto space, such as David Kanitsky of Dominant Strategies, remain confident that the drive for decentralisation and censorship resistance will continue to fuel development on the TON blockchain.

Hamster Kombat claims to have 300 million players, and the Notcoin mini-app reached 35 million users just three months following its launch. Back in April, Durov acknowledged the importance of blockchain-based mini-apps as drivers of Telegram adoption, predicting that it would surpass 1 billion users within a year.

Additional complications

The complexity of Durov's legal troubles is compounded by other factors, including claims that his phone was hacked in 2017, a year before he met with French President Emmanuel Macron. This incident has raised questions about the extent of surveillance and targeting Durov has faced over the years. Moreover, reports suggest that Durov has visited Russia multiple times since his exile in 2014, sparking speculation about his connections with Russian authorities, which both he and Telegram have denied.

Telegram has defended Durov, emphasising its commitment to user privacy and dismissing the allegations as unfounded. The company's stance remains that it is not responsible for the misuse of its platform by third parties and that its refusal to comply with data requests is rooted in a broader commitment to digital rights.

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Pavel Durov's ongoing legal issues in France underscore the tension between digital privacy advocates and regulatory authorities. As Durov fights these charges, the impact on Telegram, TON, and the broader crypto market remains uncertain. While Telegram continues to push boundaries in secure communication, the legal pressures on its founder may influence the company's future direction and its ability to navigate the complexities of global regulation.

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