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Telegram is holding a secretive second pre-ICO sale

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You have to admire Pavel Durov’s audacity.

Over the past few months, the CEO of Telegram convinced 81 accredited investors, including Silicon Valley giants Sequoia Capital and Benchmark, to give him $850 million in a presale of his company’s cryptocurrency in advance of an initial coin offering, or ICO. Now he’s trying to raise even more money from accredited investors before the coin gets offered to the public in a secretive second presale.

This week, investors got an email explaining that Telegram is doing another private presale, four sources with knowledge of the deal told The Verge.

The exact amount to be raised is still being determined, according to one source, but two other sources said Telegram is estimating it will be around the same size as the first round, which would bring the total raised to around $1.6 billion before the ICO even opens up to the general public. Telegram’s offering was already the largest ICO ever, dwarfing the previous record of $232 million. Telegram declined to comment on the second presale. Sequoia Capital declined to comment and Benchmark did not respond to questions.

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The change in Telegram’s plans comes as the company is under scrutiny for its proposed Telegram Open Network or TON, which promises to be an Ethereum-like ecosystem with apps, services, and a store for digital and physical goods. Critics say the proposal is short on technical details, and that Telegram’s high valuation is being driven by hype and speculation rather than the value of the technology.

How much money is Telegram raising total? Estimates have varied. The company seemed to revise its goals upward as interest in the offering surged. One cryptocurrency and blockchain investor, Carlos Mosquera of Solidus Capital, said the numbers presented by Telegram kept changing; he was offered different versions of the offer from different intermediaries. Discounts on the presale coins ranged from 30 to 80 percent of the expected public price, according to multiple investors who were pitched on the first presale. “A month and a half ago we got the pitch and the opportunity for Telegram,” Mosquera said. “We passed because we received two or three different terms and deals by the same ICO. None of the information was clear.”

Mosquera’s firm was not invited to participate in the second presale, but he said he isn’t surprised to hear that Telegram is looking for more private investor cash. “Nowadays the presales are hotter than the crowd sale itself,” he said.

Related: Secretive messaging app Telegram is selling a $2 billion crypto dream — but skeptics smell a ‘ploy’

It makes sense for Telegram to raise more private money if there is enough demand, multiple investors told The Verge. The first presale was rumored to be oversubscribed, and early investors are reportedly flipping their shares and making 2x returns on the secondary market.

The SEC has also been increasing its oversight of ICOs, which means Telegram may not make its public ICO available in the US,
CNBCreported
. That could be part of the reason why Telegram wants to get more money from accredited investors — meaning firms and individuals with annual income of $200,000 or a net worth of $1 million — because there are fewer regulatory requirements through that process than through an offering to the general public.

Telegram’s public ICO was expected to take place in March.. It’s unclear if the new second private offering affects the timeline for the public sale or how many coins will be available to the public at launch.

Telegram’s ICO is one of the most anticipated the cryptocurrency world has seen, and it’s the first to attract more traditional Silicon Valley venture capital firms. But observers are skeptical of its value offering.

Telegram’s ICO will fund a suite of blockchain-based products including file storage, a DNS service, and an ad exchange as part of the Telegram Open Network or TON, according to the 132-page “technical white paper” circulated to investors. Critics say the proposal makes ambitious claims, such as being able to process millions of transactions per second, without explaining how.

Christian Catalini, a professor and founder of MIT’s Cryptoeconomics Lab, is working on a study of about 1,500 ICOs with his team. “We actually document in our research paper that there has been a major transition from more technical white papers to the kind of white papers that look a lot more like sales pitches,” Catalini told The Verge.“There’s been less focus on technical details over time and, for some of these, much more on selling the vision. In the case of the Telegram one there is a lot that is being promised and not a lot of clarity on how that would be delivered.”

Matthew Green, cryptographer and professor at Johns Hopkins University, had a similar reaction to the white paper. “So to their credit, Telegram has shown that it can execute and get software written. That’s actually a big deal when it comes to blockchain projects,” Green said in an email. “That plus millions of dollars means they could pull something off. But I’ll be honest, the white paper reads like someone went out on the Internet and harvested the most ambitious ideas from a dozen projects and said ‘let’s do all of those but better!’ It feels unachievable, at least at the scale they’re aiming for now.”

Even if the Telegram team had included more technical details, not everyone is convinced it makes sense conceptually. Telegram is effectively proposing to act as a benevolent dictator — it will control a majority of its currency, at least to start — helping a system that will eventually be decentralized get off the ground.

“Blockchains are useful when there’s no central authority in command, or when there’s risk that the owner of the platform might fold,” Emin Gün Sirer, a professor at Cornell, expert on distributed systems, and co-director of the Initiative for Cryptocurrencies and Contracts, said in an email. “Yet Telegram ICO’s appeal stems from its reach to 200 million users, and its central vision over the future of the platform. If the owner folded, there would be little value to what remains. So their adoption of a blockchain, in fact, a whole family of blockchains, seems spurious.”

Others have speculated that Durov is not really raising money for a new blockchain-centric venture, but simply to keep Telegram afloat. Durov was reportedly self-funding the company with his earnings from selling VK.com, the Russian Facebook clone that he founded. “With growing user base, he would’ve eventually run out of money. Therefore he opted for an ICO as a mechanism to raise funds without getting outside investors into Telegram’s shareholder capital,” Gregory Klumov, CEO of the government blockchain company Stasis, told Bloomberg.

Charles Noyes, a quantitative analyst at the cryptocurrency VC firm Pantera Capital, said his team passed on Telegram’s private presale the first time around. (His firm did not get the offer for the second presale.) To him, the secretive Telegram ICO goes against the spirit of blockchain development.

“it’s very important in blockchain technology and specifically cryptocurrencies that you be very open with what you’re trying to do and have as many people as possible looking at it to see if they can find a flaw,” he said. The Bitcoin white paper was first published to a cryptocurrency mailing list, and its pseudonymous author Satoshi Nakamoto requested feedback. Not inviting outside scrutiny is dangerous, Noyes said. “When you operate the way they do, which is closed, with secrecy, not subjecting yourself to peer review, you basically open yourself up to the possibility that there is a trivial bug in it that destroys the network.”

Whether the platform functions well may not matter for early investors. Even with the lockup period that restricts them from selling their tokens right away, investors who bought their coins at a discount could see a significant return after the ICO opens up to the broader public and starts circulating on the TON network. Telegram can also promote its ICO to its users, who numbered 170 million in October 2017 according to one of the presale documents, and its app has become a hub for cryptocurrency chat groups.

“Telegram as a messenger may attract them to Telegram’s new network,” said Alan Woodward, a visiting professor at the University of Surrey, expert in cryptography and information security who has criticized Telegram in the past for using proprietary cryptography instead of commonly-accepted, peer-reviewed cryptography. “Something seems to have worked,” he wrote in an email, “in that they have raised a lot of money already.”

Additional reporting by Casey Newton and Lauren Goode

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Biden to hold infrastructure plan meeting this week

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U.S. President Joe Biden acknowledges reporters and visitors as he departs on travel to Wilmington, Delaware from the South Lawn of the White House in Washington, June 18, 2021.

Carlos Barria | Reuters

President Joe Biden expects to meet with lawmakers this week as a group of Democrats and Republicans try to forge an infrastructure plan that could get through Congress with bipartisan support, White House press secretary Jen Psaki said Monday.

At least 21 senators from both parties have backed a framework that seeks to spend roughly $1 trillion on transportation, broadband and water systems. Biden and Democratic congressional leaders have raised questions about how lawmakers plan to pay for the plan, while liberals have called it inadequate to fight climate change.

The president’s talks this week could mark a final push to find a compromise before Democrats try to pass a sprawling infrastructure plan on their own. While the discussions between Democrats and Republicans go forward, Biden’s party has started the process of drafting a budget resolution that would allow them to pass a bill without GOP votes.

A bipartisan deal could now depend on whether the White House and Republicans can strike a funding compromise, and on what Democratic leaders promise skeptical progressives they can pass as part of a separate bill. Biden will not support a potential increase in gas taxes or vehicle mileage fees — revenue raisers floated as part of the bipartisan talks — because they would break his promise not to hike taxes on people making less than $400,000 per year, Psaki told reporters Monday.

“That is a nonstarter for him,” she said.

Psaki added that Biden supports boosting IRS enforcement to ensure wealthy people do not avoid existing taxes. Doing so would meet a Republican demand not to revise the 2017 GOP tax cuts, she said.

Biden initially called to hike the corporate tax rate to 28% to pay for his $2.3 trillion infrastructure plan.

Disagreements over how broad the proposal should be and how to pay for it threaten to trip up the bipartisan plan in the Senate. Sen. Bernie Sanders, a Vermont independent who caucuses with Democrats, said Sunday he would not support a higher gas tax or an electric vehicle mileage fee as part of an infrastructure bill.

“One of the concerns that I do have about the bipartisan bill is how they are going to pay for their proposals, and they’re not clear yet,” he told “Meet the Press.” “I don’t know that they even know yet, but some of the speculation is raising a gas tax, which I don’t support, a fee on electric vehicles, privatization of infrastructure. Those are proposals that I would not support.”

The bipartisan group could consider excluding a gas tax increase from the plan, Sen. Rob Portman, an Ohio Republican and one of the negotiators, told “Meet the Press” on Sunday. He said the Biden administration “will need to come forward with other ideas without raising taxes.”

Meanwhile, Democrats including Sen. Ed Markey of Massachusetts have said they will not back a bill that does not include more funding to combat climate change. On Monday, he told MSNBC that he “cannot support a deal that does not have climate at its center.”

Some Democrats have signaled the party could try to pass a broader bill that address climate change without Republicans after Congress approves a bipartisan infrastructure plan. Markey said he would need “an absolute guarantee that climate is dealt with” in a second bill in order to back the bipartisan framework.

Eleven Republicans have said they support the plan. In the evenly split Senate, only one Democrat could oppose it for it to win the 60 votes needed to overcome a filibuster.

The plan put forward by the Democratic and Republican senators focuses on what the GOP has called physical infrastructure. Biden and his party have pushed to pass policies including care for dependent family members and upgrades to housing and schools as part of their infrastructure plans, contending they are necessary to boost the economy.

If Democrats cannot strike a deal with the GOP, they could push ahead with a multitrillion dollar proposal that would not only upgrade transportation, utilities and broadband, but also accelerate the adoption of clean energy, expand child care and boost job training programs. To be successful, all 50 Senate Democrats would have to vote for that bill.

At least one Democrat, Sen. Joe Manchin of West Virginia, has insisted on passing an infrastructure bill with Republican votes. It is unclear if he would back a separate reconciliation bill if Congress passes an initial infrastructure plan with bipartisan support.

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Here’s why the market may be wrong about the Federal Reserve and interest rates

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Traders on the floor of the New York Stock Exchange.

Source: NYSE

Monday’s aggressive stock market rally came despite the fears of one Wall Street firm that investors still aren’t appreciating how quickly the Federal Reserve could start raising rates.

After getting hammered in the final three trading days last week, Wall Street came roaring back with a move that sent the Dow Jones Industrial Average up more than 1.5%.

“The market is getting back to its comfortable mode,” Mohamed El-Erian, the chief economic advisor at Allianz, told CNBC’s “Squawk Box.” “Growth is strong. They still believe inflation is transitory. They believe the Fed is going to be relatively slow in tapering [monthly asset purchases], and that’s why you’re seeing” stocks higher.

That sanguine view of Fed policy is a mistake, according to Bank of America credit strategist Hans Mikkelsen.

Last week’s Federal Open Market Committee concluded with officials indicating they now see two rate increases coming as soon as 2023, more quickly than the market had been anticipating.

But Mikkelsen’s view is that tighter monetary policy may come even sooner.

“Expect the Fed to soon begin tapering its [quantitative easing] purchases, and to start hiking interest rates earlier than expected – and most importantly much faster than currently priced in markets,” he said in a note to clients.

The bank’s analysis noted the committee was only “two dots,” or the projections of two members of the 18-person committee, away from pulling the first rate increase into 2022. The panel split evenly on whether rates should move next year, while eight members saw as many as three hikes for 2023.

Taken collectively, the members’ sentiment about where policy should go offered a significant deviation from what has been a historically easy Fed.

Mikkelsen said the credit market, which sent rates sharply lower despite the hawkish Fed, is misjudging which way the central bank is heading. From the market’s perspective, it is seeing just a 41% chance that the Fed hikes rates by July 2022, according to the CME’s FedWatch tracker.

“The key mispricing in the rates market, as our rates strategists continue to point out, is not the taper, not the timing of the first rate hike, but the pace of hikes from that point on, which is way too shallow compared with normal hiking cycles in the past,” he wrote.

Mikkelsen pointed out that the Fed in effect has already begun tapering with its moves to unwind the small portfolio of corporate bonds it purchased during the Covid-19 pandemic. That move, “which was 100% unexpected as the Fed has a poor track record selling assets – was a signal the Fed increasingly feels emboldened to exit their super-easy monetary policy stance, even if that means defying market expectations.”

Changes in the Fed

For their part, Fed officials are indicating the landscape indeed is shifting, as reflected in the dot-plot projections released Wednesday.

New York Fed President John Williams, in a speech Monday, reflected the consensus view when he said he views inflation as transitory and Fed policy as appropriate given the current and expected conditions.

“It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good. But the data and conditions have not progressed enough for the FOMC to shift its monetary policy stance of strong support for the economic recovery,” Williams said in prepared remarks.

But within the Fed, opinions are diverging.

St. Louis Fed President James Bullard jolted the market Friday when he told CNBC he was one of the FOMC members who thinks a rate hike in 2022 would be appropriate. Bullard is not a voter this year but will be one next year.

But Dallas Fed President Robert Kaplan said Monday he is more focused on reducing the pace of bond purchases – tapering – for now, and sees the rates question as one to be answered another day.

“I would rather see us act sooner rather than later on asset purchases, then we’ll make a decision down the road in 2022 and beyond about the additional steps that are necessary,” said Kaplan, who appeared jointly with Bullard for a discussion presented by the Official Monetary and Financial Institutions Forum. “But I think the issue on the table today and in the near term is the timing and adjustment of these purchases.”

Both officials noted the progress the economy has made and see reason that the inflation that has arisen in recent months may be a little stickier than the Fed had anticipated.

“The supply-demand imbalances, some of them we think will resolve themselves in the next six to 12 months,” Kaplan said. “But again some of them we think are likely to be more persistent, driven by a number of structural changes in the economy.”

For example, he cited changes in the energy industry – a key component of Kaplan’s district – toward sustainable power as contributing to longer-lasting inflationary pressures.

Bullard spoke of the evolving labor market as an important consideration for future Fed policy.

“We have to be ready for the idea that there’s upside risks to inflation,” he said. “Certainly, the anecdotal evidence is overwhelming that this is a very tight labor market.”

If those inflationary pressures are hotter than Fed officials think, it would force them into tightening policy faster than they would like. That would hit the stock market and broader economy, both of which are dependent on lower rates.

A tight Fed would drive up borrowing costs for a government that has been on a spending binge over the past year and wants to do even more with infrastructure.

“Right now, inflation is transitory. But if you overlay that with significant further stimulus, then you run the risk of making something transitory permanent,” Natixis chief economist for the Americas Joe LaVorgna said. “So, you’re in a really tricky spot. I think the Fed’s best approach is to say less.”

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Man City make transfer bid for Tottenham striker

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Harry Kane of England scores a penalty in a shootout at the end of extra time during the 2018 FIFA World Cup Russia Round of 16 match between Colombia and England at Spartak Stadium on July 3, 2018 in Moscow, Russia. 

Robbie Jay Barratt – AMA/Getty Images

Manchester City have made a £100m bid for Tottenham striker Harry Kane.

City are open to including players in addition to the cash offer, but Tottenham are expected to reject the bid.

Sky Sports News exclusively reported last month that Kane had told Spurs he wanted to leave this summer with Man City, Manchester United and Chelsea interested.

Kane is valued at upwards of £120m and Tottenham keen to keep him despite the 27-year-old believing he has a gentleman’s agreement with Daniel Levy.

The England captain is said to be fully focused on the Euros, with a decision on his club future not expected before the conclusion of the tournament.

Man City chairman Khaldoon Al Mubarak said after last month’s Champions League final that the club will be “competitive and aggressive” this summer, and are aiming to strengthen by bringing “quality to the squad in a couple of key positions”.

The Premier League champions’ priority is to replace Sergio Aguero, with Kane being considered along with Erling Haaland, Romelu Lukaku and Lautaro Martinez.

Man City begin their Premier League title defense by travelling to Tottenham on August 15, live on Sky Sports.

Kane insists that neither a lack of fitness nor speculation over his future at Tottenham have been the reasons for his disappointing start to Euro 2020.

Kane was substituted in England’s opening win over Croatia and their underwhelming 0-0 draw with Scotland following below-par performances in both games.

His displays have come as a surprise given he enjoyed an impressive season with Spurs, topping the Premier League charts for goals and assists, despite his club’s struggles.

And while he did sustain a couple of ankle injuries during the campaign, he returned from the most recent of those nearly two months ago, and was a regular for Spurs until the end of the season.

Kane won the Golden Boot at the 2018 World Cup – a factor that has only added to expectations on him at Euro 2020 – and although he admits he became fatigued in Russia three years ago, he says that is not the problem this time around.

“Gareth [Southgate] is within his rights to make the changes he thinks are best for the team,” Kane told The Guardian when asked for his reaction to being replaced in both of England’s games so far.

“What we’ve learned over past tournaments is about trying to peak at the right time. The best time to be peaking is in the knockout stages and hopefully kick on from there.

“Maybe in Russia there were times, towards the quarter and semi-final, when I wasn’t as sharp as I wanted to be. In the end we didn’t get to where we wanted to go, maybe partly for that reason.

“It’s about managing the squad, making sure everyone is feeling as fit and sharp as possible. In my case, it was a tough couple of games and it’s about making sure I’m right for the rest of them.

“I didn’t have any issues. I didn’t feel physically I wasn’t up to it. I felt going into those games as good as I’ve felt all season, if I’m honest.”

Although Kane was one of the standout players in the Premier League during the 2020/21 season, Spurs endured a difficult campaign, finishing seventh in the table, without a trophy or a manager, having sacked Jose Mourinho in April.

The club was also rocked by the news that Kane had told them he wanted to leave this summer due to their failure to regularly compete for – and win – trophies.

Manchester City, Manchester United and Chelsea are all understood to be keen on signing the striker but, despite his future promising to be one of the main plotlines of this summer’s transfer window, Kane says it is not affecting his international performances.

“Absolutely not,” he insisted. “All my focus is on how I can help this team and how we can be successful in this tournament.

“I understand from a media point of view there is speculation, but I am fully focused on the job here.”

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