Original Title: TON Part 2: A win-win outcome from one year of partnership

Author: Animoca Brands Research

Translation: Mensh, Chaincatcher

Key Questions:

• How is TON progressing towards its goal of bringing 500 million users into cryptocurrency?
• What strategies is the TON Foundation implementing to elevate the ecosystem to a higher level?
• What benefits has Telegram gained from its partnership with TON?

An interesting chart:
Changes in the total number of active wallets and Jetton wallets from September 30, 2023, to October.

Table of Contents

• Introduction
• Three-Step Strategy
  • Step One: Promote "Click to Earn" social games to bring users into Telegram Mini Apps
  • Step Two: Convert Mini-App players into cryptocurrency holders through token airdrops
  • Step Three: Retain cryptocurrency users through DeFi applications
  • Notcoin, Hamster Kombat, and Catizen
• Growth of the TON Blockchain
  • Activity
  • Total Value Locked (TVL)
  • Comparison with other Layer 1s
• Summary of the TON Section
• Success of Telegram
  • Features related to the partnership with TON
  • Growth in popularity of the Telegram platform
  • Impact on Telegram's profitability
• Conclusion

TL;DR

• In September 2023, the TON Foundation and Telegram announced a strategic partnership aimed at bringing 30% of Telegram's active users into the TON ecosystem by 2028. As an infrastructure layer, TON leverages Telegram Mini Apps to cover and attract Telegram's vast user base.
• The success of Notcoin has paved the way for activating Mini-App users through social games. Subsequently, users gradually engaged with cryptocurrency through airdrops of game tokens and meme coins. To support this growth, the foundation utilized TON Grants, The Open League, and offline events to achieve its goals.
• By July 2024, the monthly active users (MAU) of Telegram Mini Apps reached 500 million, driving Telegram's overall MAU to a new high of 950 million. As of October, 30 million users had successfully entered the cryptocurrency space.
• The high interaction rate of Telegram Mini Apps not only enhanced user engagement on the Telegram platform but also significantly increased platform revenue, particularly boosting premium account subscriptions and the exclusive use of Toncoin in the advertising platform. Telegram is expected to achieve its first profitable year in 2024, with annual revenue potentially reaching $1 billion.
• To further accelerate ecosystem growth, the TON Foundation is shifting from a centralized governance model to a community-driven funding allocation model through "Society DAO." This transition aims to foster more development and innovation within the ecosystem.

Introduction

In September 2023, the TON Foundation deepened its collaboration with Telegram, aiming to bring 30% of Telegram's active users into the TON blockchain ecosystem by 2028. Since the announcement, the TON Foundation has been dedicated to nurturing the Telegram Mini-App (TMA) ecosystem, positioning Mini-Apps as the entry point for existing Telegram users into the cryptocurrency ecosystem.

This partnership allows TON to reach over 900 million Telegram users. For Telegram, the community activities organized by the TON Foundation have become a core market expansion force for the Mini-App ecosystem, filling the market gap left by the company's streamlined operations.

This article will explore the journey of both parties since the partnership began and the impact it has generated so far.

Three-Step Strategy

In the partnership announcement, Mini Apps were proposed as an intermediary layer connecting the TON infrastructure with Telegram's Web2 user base. Successfully implementing this strategy requires addressing the following three key questions:

1. How to attract Telegram users into Mini Apps?
2. How to convert Mini-App users into cryptocurrency users?
3. How to retain these cryptocurrency users in the long term?

Jack Booth, former Head of Market Development at the TON Foundation and co-founder of TON Society, shared insights on this strategy during a podcast interview in August 2023:

“We engage everyone through ‘Click to Earn,’ and then some users can easily conduct global cryptocurrency transactions via DM. Subsequently, a portion of these users will start using more complex DeFi products on TON. That’s the logic behind the whole plan.”

In summary, the foundation's answers to the above questions are:

1. Promote "Click to Earn" social games to attract users into Telegram Mini Apps.
2. Convert Mini-App players into cryptocurrency users through token airdrops.
3. Retain cryptocurrency users through DeFi applications.

In fact, this three-step strategy is more of a retrospective summary of a community-driven innovation development process rather than a top-down execution plan. Next, we will explore these three components in detail.

Step One: Promote "Click to Earn" social games to attract users into Telegram Mini Apps

After launching the partnership with Telegram, the TON Foundation actively promoted the development of Mini-Apps through its community engagement channels.

In Q3 2024, GameFi projects began to appear among the funded projects of TON Grants, alongside traditional on-chain functional projects. This change indicates that the foundation has recognized the significant potential of game development in promoting the popularity of Mini-Apps.

In January 2024, the first phenomenal Mini-App game Notcoin was launched. This "Click to Earn" social game quickly became a hotspot on Telegram, attracting 35 million users even before its Token Generation Event (TGE). Interestingly, Notcoin originated entirely from community innovation and was not initially included in the foundation's plans. However, its success prompted the foundation to prioritize social games in its funding areas.

In the first half of 2024, the number of funded GameFi projects continued to increase. For example, Hamster Kombat and Catizen were launched in March 2024, attracting 300 million and 39 million users, respectively, before their TGEs.

By the end of May 2024, the monthly active users (MAU) of Telegram Mini Apps had reached 400 million, increasing to 500 million in July. Considering that Telegram's total MAU during the same period was approximately 950 million, this means that over half of Telegram users interacted with Mini Apps monthly. Achieving this milestone in less than 10 months is undoubtedly a significant success for the TON Foundation.

Step Two: Convert Mini-App players into cryptocurrency users through token airdrops

The launch of tokens and airdrops has become a key step in converting Web2 players into cryptocurrency users. Points earned through the "Click to Earn" mechanism are converted into on-chain tokens with real market value, incentivizing users to explore and engage in cryptocurrency trading.

The infrastructure supporting this conversion has been established on Telegram. By November 2023, Telegram wallets and non-custodial TON Space wallets were integrated into Telegram, allowing users outside the U.S. to receive Jettons (the fungible token standard on the TON blockchain).

The launch of Notcoin and its airdrop was the first significant initiative in this conversion process. In the first week of the Notcoin token airdrop on May 16, 2024, 2.7 million out of 35 million users claimed Notcoin tokens, and by August, this number had reached 11 million. This impact is reflected in key metrics of the TON ecosystem: the number of active wallets doubled from 4.2 million to 8.5 million in the first month after the token launch, while the number of wallets with non-zero balances increased from 3 million to 6 million during the same period.

This success was replicated by subsequent social games such as Hamster Kombat (TGE on September 26, 2024) and Catizen (TGE on September 20, 2024). They brought in 3.2 million and 1.8 million on-chain token claims, respectively, further driving the increase in the number of wallets with non-zero balances in October.

The wallet proliferation driven by GameFi has laid the foundation for broader cryptocurrency applications on TON. For example, the meme coin DOGS became the first popular meme coin on the TON network, with its launch at the end of August 2024 triggering a new wave of wallet activations, paving the way for subsequent game token releases. This success was entirely driven by the TON community, and while unexpected, it had a significant impact.

By November 1, 2024, the registered users of TON Space (Telegram's non-custodial wallet) had reached 100 million, while the total number of activated wallets on the TON blockchain (including TON Space and third-party on-chain wallets) reached 34 million.

Step Three: Retain Cryptocurrency Users through DeFi Applications

After attracting Telegram users into Mini-Apps and introducing them to cryptocurrency, retaining these users in the ecosystem has become a primary task for the projects and the foundation.

The challenges of user retention can be illustrated by the performance of GameFi projects on the TON chain. Measured by daily active unique wallets (UAW), the best-performing projects maintained about 60% of their daily activity even after their peak. However, for projects with average and lower performance, retention rates dropped sharply: projects in the second tier retained only 37%, while those in the third tier retained just 25% of their activity.

Measures to Address User Churn

To tackle this issue, the TON Foundation and project teams have strengthened user retention through the following methods:

1. Integration of DeFi Tools: Introducing decentralized exchanges (DEX), staking, and liquidity mining tools to provide users with more opportunities for managing and earning on crypto assets.
2. Optimization of Reward Mechanisms: Incentivizing long-term participation in on-chain activities through airdrops and in-game economic designs.
3. User Education and Support: Helping users familiarize themselves with more complex DeFi applications through embedded tutorials in Mini-Apps and interactive communities, lowering the learning curve.
4. Ecosystem Synergy: Introducing GameFi users to other application scenarios, such as NFT markets, DAO participation, and on-chain payments, further expanding the value network of the TON ecosystem.

Although there is still room for improvement in retention rates, the foundation's initiatives are gradually solidifying long-term user engagement, laying the groundwork for the sustainable development of the TON ecosystem.

While the TON Grant program primarily focuses on supporting the initial development of applications within the ecosystem, The Open League (TOL) has emerged as a more effective alternative for promoting user retention. Launched by TON Society in January 2024, TOL is an incentive program designed to reward the best-performing projects over a specific period. Unlike funding that emphasizes project potential, TOL focuses on rewarding actual results. The program is divided into four competition categories: App, DeFi, Token, and NFT. Each category uses specific metrics to evaluate the performance of DApps or tokens. Seasons typically last from two weeks to two months, allowing the foundation to adjust incentives based on rapidly changing dynamics.

Particularly in the application category, the evaluation of Telegram Mini Apps is based on a range of on-chain interaction metrics (such as unique active wallets and transaction volume per user), as well as online metrics, including the number of Telegram users and the stickiness of Mini-App users.

While all four categories play important roles in strengthening the ecosystem, the shifting emphasis among them reflects the evolving priorities of the TON Foundation. The token and application categories have consistently been significant reward categories. DeFi stopped receiving rewards after the first two seasons but regained attention in the fifth season.

The TON Foundation made significant adjustments to the TOL model in the sixth season. Instead of providing Toncoin rewards to projects that could attract user interest, it now directly rewards users who can bring more activity to the projects. This new approach includes two main initiatives:

1. Normie Airdrop: Encouraging users to explore DApps by granting them "Normie Scores," which can be exchanged for Toncoin tokens or project airdrop rewards.
2. Degen Airdrop: Targeting traders, rewarding them based on their trading activity and liquidity provision assessed through a "Degen Score."

Shifting from funding developers to incentivizing on-chain users, especially those driving more transactions and liquidity, reflects the TON Foundation's belief that broadly promoting user engagement between Telegram Mini Apps and DApps is more impactful than focusing on a few top-performing projects.

Additionally, in October, the TON Foundation supported the launch of Memelandia, a community-supported organization aimed at promoting the growth of the meme coin ecosystem within the TON ecosystem. This indicates the foundation's recognition of the important role meme coins play in driving community engagement and on-chain activity. Early success stories include DOGS, which has 17 million holders and peaked at 14.4 million daily transactions.

Although Jack viewed DeFi as the primary tool for user retention in his comments in August, the actual development trajectory shows a greater diversification trend. GameFi, meme coins, and DeFi are becoming significant contributors to maintaining an active and engaged TON-Mini App community.

At the same time, the TON Foundation is gradually transitioning to a more decentralized governance structure, particularly in promoting community-driven initiatives. This shift is reflected in the August independent operation of TON Society and the introduction of Society DAO in December. Through this decentralized decision-making framework, community members can autonomously explore and leverage emerging opportunities in different areas of the TON ecosystem, further accelerating its growth.

Notcoin, Hamster Kombat, and Catizen

As one of the most successful categories in this collaboration, it is worth analyzing three highlight projects: Notcoin, Hamster Kombat, and Catizen.

In the previously mentioned user conversion path, the clear support from TON Grants and the results of TOL indicate that GameFi projects, especially those adopting the "tap-to-earn" model, are the "engine" of the entire conversion path.

These three mini-games engage users through simple gameplay (such as clicking actions) to earn points. Users can also earn additional points by participating in social referral programs, inviting friends to join the game, thereby rapidly expanding the user base. After the token generation event (TGE), points can be redeemed for airdrop rewards, thus activating users' wallets.

After undergoing a Sybil detection process used to identify and prevent fake players, it was found that about 40% of players in Hamster Kombat and Catizen met the airdrop eligibility criteria. Nevertheless, the actual number of players in these games still exceeded 10 million, with Hamster Kombat users even surpassing 100 million. This level of engagement is comparable to mainstream mobile games.

On-chain activity demonstrates the effectiveness of attracting users' interest in cryptocurrency. As of November 16, 2024, the number of holders for Notcoin, Hamster Kombat, and Catizen reached 2.9 million, 1.3 million, and 1.6 million, respectively, surpassing the number of holders for mainstream GameFi tokens.

From one month after the TGE to November 8, 2024, the proportion of non-zero addresses (defined as addresses holding Jetton balances) among all addresses that once held Jetton was as follows:

• Notcoin: approximately 40%
• Hamster Kombat: approximately 80%
• Catizen: approximately 70%

These differences indicate that users of Hamster Kombat and Catizen exhibit higher loyalty as holders, likely due to the implementation of the Sybil detection process.

Growth of the TON Blockchain

With the success of attracting and converting Telegram users, the TON blockchain has experienced significant growth.

Activity Data

• Wallets: As of October 2024, the number of activated wallets increased from 800,000 in September 2023 to 32 million, a growth of 39 times. Additionally, the number of Jetton wallets with a non-zero balance also grew to 22 million, indicating that a large number of activated wallets are being actively used.
• User Engagement: Monthly active wallets (MAWs) reached 10 million in October, with daily active wallets (DAWs) averaging 800,000. Compared to 14 months ago, both metrics have increased by over 90 times.

Cryptocurrency Usage

• On-chain Transaction Volume: Monthly on-chain transaction volume (measured by the number of transactions) reached 200 million in October 2024, a growth of 30 times compared to September 2023, with approximately 60% of transactions involving Toncoin transfers.
• Transaction Fees: Monthly on-chain transaction fees increased to 5.1 million dollars, demonstrating the high activity level of the TON ecosystem.

Total Value Locked (TVL)

Total TVL: As of October 2024, the total value locked (TVL), including liquid staking, reached 726 million dollars. This growth is primarily attributed to the expansion of decentralized exchanges (DEX) and liquidity staking protocols. With the support of TON Grants and the early seasons of TOL, liquidity staking protocols and DEX achieved TVLs of 335 million dollars and 342 million dollars, respectively. STON.fi and DeDust.io have grown to become the two leading DEXs on the platform.

Comparison with Other Layer 1s

To better understand these metrics, we can compare TON's active indicators and TVL with other major Layer 1s. While TON still has room for growth in absolute scale of on-chain usage, its development trajectory is impressive.

• The time taken for monthly transaction volume to grow from 5 million to 30 million was 52 months for Ethereum, 28 months for Avalanche, while TON achieved this in just 5 months.
• In terms of the growth rate of TVL, TON is comparable to other Layer 1s.

In terms of recent scale-related metrics, TON's transaction fees and native token transfer volume are still lower than Ethereum. However, compared to infrastructure projects with similar market capitalizations (like Avalanche), TON is already leading in transaction fees and native token transfer volume. The volume of Toncoin transactions on-chain has reached 20% of Ethereum's, highlighting the widespread use of Toncoin as a digital currency within the TON ecosystem.

Summary: Challenges Remain for TON

The collaboration between TON and Telegram has greatly enhanced TON's ability to attract developers and energize the community. The early success of the social game Notcoin catalyzed exponential growth in the usage of Telegram Mini Apps, while subsequent initiatives like airdrops and the introduction of meme coins like DOGS successfully brought a large number of Telegram Mini App users into the Web3 ecosystem. This rapid expansion is an achievement that other major Layer 1 protocols cannot match.

However, challenges remain. It is yet to be verified whether TON and Telegram Mini Apps can maintain user stickiness after the initial surge. Games, meme coins, and DeFi all have the potential to cultivate a sustainable Web3 user base, but to achieve the key goal of attracting 500 million users by 2028, a 20-fold increase from the current baseline of approximately 30 million activated wallets is still required.

To address these challenges, the foundation has shifted from a top-down governance model to a more community-driven resource allocation approach. This transition aims to empower the TON community to better explore and seize growth opportunities. It is expected that new TON initiatives from communities around the world will continue to thrive. Ultimately, a prosperous ecosystem is built on the foundations of diversity and adaptability.

Success of Telegram

Telegram is a messaging platform with 950 million monthly active users, and its operational team is extremely lean, consisting of only 30 engineers and 50 staff members. This streamlined structure ensures that the company can focus on scalable technology development, such as core messaging features and developer SDKs, or high-impact partnerships, such as integrating wallets and stablecoins into the platform. However, for labor-intensive activities like developer engagement or advertising operations, Telegram needs to rely on outsourcing or handing these opportunities to external parties.

This operational philosophy is reflected in Telegram's collaboration with Mini Apps. Mini Apps were initially launched as "Web applications" with the release of Telegram Bot API v6.0 in April 2022, allowing developers to launch rich web experiences (such as games and media) directly through Telegram bots. In June 2023, with the release of API v6.7, Web Apps were officially renamed Telegram Mini Apps. Although the functionality was upgraded, Mini Apps did not attract much attention in the first 18 months.

It was during this period that the TON Foundation became the ideal partner for Telegram in promoting Mini Apps. With its established global developer community and the ability to utilize Toncoin reserves to issue incentive programs, the foundation played a key role in driving the adoption of Mini Apps.

The success of Telegram Mini Apps not only enhanced the platform's user base but also provided Telegram with opportunities to monetize through increased user interaction. Revenue sources such as premium accounts, digital collectibles, and advertising are directly linked to the growing ecosystem. As Telegram plans to go public by 2026, achieving profitability through this wave of platform growth is crucial for Telegram.

TON Collaboration-Related Features

Since the collaboration began, Telegram has been launching features related to TON and Mini Apps. These features either lay the groundwork for integrating cryptocurrency into the Telegram ecosystem or support the growth and adoption of Mini Apps.

TON Wallet: In November 2023, Telegram partnered with third-party developer The Open Platform (TOP) to launch its native wallet. This wallet operates in a custodial format, meaning that encrypted transaction records are stored on a central server, similar to centralized exchanges. It also includes a non-custodial wallet option, TON Space, integrated into the wallet interface, providing direct on-chain transactions like MetaMask.

USDT on TON: In April 2024, Tether USD (USDT) — the largest stablecoin by market capitalization — launched its TON version. Through this initiative, Telegram users can conduct crypto dollar transactions directly via the native wallet or third-party wallets. While this feature seems like a natural move for the TON Foundation, it was actually ensured by the Telegram team.

Telegram Stars: Launched in June 2024, Stars is Telegram's online points system that allows users to purchase digital goods and services. Users can buy Stars using fiat currency through Apple and Google stores or purchase them using Toncoin through Fragment. For Telegram's businesses and channel owners, Stars can serve as an additional feature to help them derive value from users. For example:

• Setting up paywalls using Stars as a payment method.
• Receiving donations directly from users.
• Purchasing advertising at about a 35% discount (for example, Stars worth $0.013 can buy $0.02 worth of advertising).

Although Stars are non-refundable, accounts holding more than 1,000 Stars can withdraw Toncoin funds through Fragment. Purchases or refunds will not be tied to any fiat currency value.

Mini-App Store: In August 2024, Telegram introduced "Apps" as a new category in its search box, simplifying the discovery process for Mini Apps. Although this feature acts more like a search tool within an app store rather than a standalone app store, it provides users with a high-level entry point for accessing Mini Apps. Regardless of the naming differences, this update complements the Telegram Apps Center (a Mini-App style Mini Apps store) previously launched by the TON Foundation.

Telegram Mini-App 2.0: On November 17, 2024, Telegram released a significant update to the Mini-App feature. New functionalities such as full-screen mode, location access, and activity tracking are designed to enhance user experience. These additions provide developers with more tools and inspire new use cases for Mini Apps, driving further adoption and innovation.

Growth of the Telegram Platform

Telegram set a record of 950 million monthly active users (MAUs) in July 2024. Telegram and Pavel Durov had previously reported that the platform reached milestones of 700 million, 800 million, and 900 million MAUs by the end of 2022, the first half of 2023, and April 2024, respectively.

Meanwhile, Mini Apps also saw significant growth, with monthly active users reaching 400 million in April 2024 and 500 million in June. This means that approximately half of Telegram users are actively engaging with Mini Apps.

Another rapidly growing metric is the number of Telegram Premium subscribers. The features enhancing the Telegram Premium experience, such as ad-free usage, real-time translation, and unlimited cloud storage, reached 1 million subscribers in December 2022. Since the collaboration began, growth has significantly accelerated, reaching 5 million by January 2024 and doubling to 10 million by September 2024.

These observations, along with the fact that 70% of the top 50 Telegram channels focus on TON projects (all of which include Telegram Mini Apps), indicate that the collaboration with TON has significantly enhanced user engagement on Telegram. The increasing popularity of Telegram Mini Apps has transformed Telegram from an occasionally used tool into an indispensable application for users, prompting many to subscribe to premium features to further enrich their experience.

Impact on Telegram's Profitability

Enhanced user engagement has significantly improved Telegram's ability to generate revenue from its platform operations. Existing revenue sources, such as Telegram advertising, collectibles sales, and premium account subscriptions, have all experienced substantial growth. Additionally, the newly launched Telegram Stars provides an extra revenue source for the platform.

Telegram Advertising: The Telegram advertising platform shifted to on-chain tracking for ad sales in April 2024, improving the transparency of its performance monitoring. Furthermore, the platform expanded its ad display range, allowing channels with fewer subscribers to display ads, enabling new advertisers to participate. According to Telegram's financial report for the first half of 2024, Telegram advertising generated $120 million in revenue over six months, nearly double the $70 million revenue for the entire year of 2023. We expect this advertising momentum to continue, with total annual ad revenue projected to reach $240 million.

Collectibles: Collectibles trading is conducted entirely on Telegram's Fragment marketplace. Revenue includes Telegram's commission on primary and secondary sales on the platform. While revenue surged in March and April, it has since stabilized. We estimate that collectibles revenue will reach $36 million in 2024, an increase of $18 million from last year, representing over 100% year-on-year growth.

Premium Account Subscriptions: As mentioned, premium account subscriptions experienced significant growth in 2024. In the reported financial results for the first half of 2024, premium account subscription revenue was $119 million. Based on the growth trend in subscription numbers, we expect total annual revenue to reach $285 million, representing over 200% year-on-year growth, making premium accounts the largest revenue source for Telegram's business.

Telegram Stars: As a digital goods sales platform, Telegram Stars brings new revenue sources to the platform. Although we lack comprehensive insights into fiat purchases made through Apple and Google, on-chain Stars sales through the Fragment marketplace provide a conservative estimate. Based on results from the first four months, we expect on-chain Stars revenue to reach $55 million in 2024. Total Stars revenue is expected to be higher, but we use this figure as a conservative estimate.

Direct Revenue from TON: According to the Financial Times, Telegram generated $225 million in revenue by allowing Toncoin to be the sole means for small businesses to purchase ads. We believe this revenue source effectively replaces the "premium access to the advertising platform" from 2023, which allowed Mini-Apps to purchase ads on Telegram with restrictions. Additionally, due to the exclusive partnership with TON, fees charged by Telegram for its "integrated wallet" are expected to continue. While there may also be user-generated fees related to transactions and withdrawals with the integrated wallet, we expect these contributions to remain relatively small this year.

Based on collected information and estimates, we predict that Telegram's total revenue for 2024 will reach at least $971 million and may exceed the $1 billion mark. The reported financial results for the first half of 2024 already show revenue of $525 million, including $225 million from Toncoin ad access revenue recognition.

In terms of expenses, Pavel Durov revealed in an interview in 2024 that, "the annual expenditure per user is less than 70 cents per month." Based on the current growth trend of monthly active users (MAUs), we expect total annual expenses to be $667 million. This would result in an annual operating profit of over $300 million****, marking a significant leap in the company's profitability.

This will be an important step in Telegram's IPO plans. Telegram raised $2 billion through convertible debt before 2024 and raised another $330 million this year. These debts are expected to mature in 2026, putting time pressure on Telegram's listing plans. The year-end profitability results will undoubtedly help strengthen its preparations for the IPO.

Conclusion

The first year of collaboration between TON and Telegram has proven to be a win-win situation for both parties. TON has achieved significant growth in popularity, and its governance model is continuously evolving to meet the demands of an active community eager to drive further expansion. With this wave of user engagement, Telegram has successfully leveraged its active user base to drive additional revenue, particularly through premium account subscriptions and exclusive rights. Under this mutually beneficial partnership, the collaboration is expected to continue thriving in the coming years.

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