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Telegram is holding a secretive second pre-ICO sale



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,
. 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, 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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Dow futures rise, extending Monday’s 300-point rally



Dow futures rose in early premarket trading, putting the average on track to extend Monday’s rally.

Dow Jones Industrial Average futures pointed to an opening gain of nearly 200 points. S&P 500 futures and Nasdaq 100 futures were also higher.

On Monday, the Dow rallied more than 300 points on investor optimism about the economic comeback from the pandemic. At its session high, the 30-stock average was up as much as 650 points to hit an intraday record.

The bullishness was fueled in part by the Senate’s passing of a $1.9 trillion economic relief and stimulus bill on Saturday, which is set to include another round of stimulus checks. Banks, airlines, cruise lines and retailers all rose amid hopes of a sharp economic rebound.

Additionally, the Centers for Disease Control and Prevention said Monday that people who’ve been fully vaccinated against Covid-19 can meet safely indoors without masks. The announcement came after the U.S. reached 3 million vaccinations over the weekend.

Technology stocks, meanwhile, continued their recent weakness as the Nasdaq Composite dropped 2.4%. The tech-heavy benchmark closed more than 10% below its Feb.12 closing high, falling into correction territory.

The S&P 500 also ended the day down about 0.5%, dragged down by shares of Tesla, PayPal, Etsy and Advanced Micro Devices.

The high-growth names have been pressured by rising interest rates lately. The U.S. 10-year Treasury yield stood around 1.6% on Monday. However, hedge fund manager David Tepper said the recent sharp rise in rates is likely over and it’s hard to be bearish on stocks right now.

Monday’s “initial rally was due primarily to news over the weekend that President Biden’s relief package had passed,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. “Ultimately, however, equity investors are currently obsessed with bond yields keeping the Nasdaq and S&P 500 technology sector under pressure all day. Since the 10-year bond yield failed to pull back from the 1.6% level near the close today, eventually pressure on technology stocks intensified going into the close.”  

“Nonetheless, most of the stock market had a nice day as small caps stocks and several reopening sectors posted healthy gains,” added Paulsen.

The small-cap benchmark Russell 2000 gained about 0.5% on Monday.

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Why a U.S.-EU dispute is likely to go from bad to worse



A worker walks past snow-covered pipework in the yard at the Gazprom PJSC Slavyanskaya compressor station on Thursday, Jan. 28, 2021.

Andrey Rudakov | Bloomberg | Getty Images

LONDON — A simmering geopolitical dispute over an undersea pipeline that would bring gas from Russia to Germany is widely expected to intensify in the coming weeks, with pressure building on President Joe Biden to do more to halt the nearly-complete project.

If finished, the 1,230-kilometer (764-mile) Nord Stream 2 pipeline will become one of the longest offshore gas pipelines in the world. It is designed to deliver Russian gas directly to Germany under the Baltic Sea, bypassing Ukraine.

Alongside several European countries, the U.S. opposes the pipeline, calling it a “bad deal” for European energy security.

Critics also argue the pipeline is not compatible with European climate goals and will most likely strengthen Russian President Vladimir Putin’s economic and political influence over the region.

Led by Russia’s Gazprom, the state-owned gas giant has claimed Nord Stream 2 is “particularly important” at a time when Europe sees a decline in domestic gas production. Advocates of the pipeline also condemn attempts “to influence or stop the project for political reasons.”

A bumpy road ahead for the project includes the threat of further targeted sanctions led by the U.S., Germany’s federal election in late September and an ongoing backlash over the poisoning and arrest of Russian opposition politician Alexei Navalny.

What’s at stake?

“The reason it is so geopolitically contentious is not necessarily about the pipeline or the molecules themselves. It has everything to do with timing and what it says about Europe’s relationship with Russia, Germany’s relationship with Russia and transatlantic relations,” said Kristine Berzina, a senior fellow at the Alliance for Securing Democracy, a national security advocacy group.

“The pipeline will either be built or it will not be built. Germany has a role in potentially killing it. Russia is finding alternatives getting around sanctions so that it can be completed but not very much of this pipeline remains,” Berzina told CNBC.

The project is 94% complete, with over 1,000 kilometers of the pipeline in place and less than 150 kilometers to go before Gazprom can then turn on the taps.

Chancellor Angela Merkel attends the 215th session of the Bundestag. Topics include the epidemic situation of national scope and the effects of the lockdown on the economy.

Kay Nietfeld | picture alliance | Getty Images

One potential stumbling block, analysts say, could be the prospect of a German government that’s opposed to the pipeline. The next general election, due to be held on Sept. 26, will determine who will succeed Angela Merkel as the country’s chancellor.

The problem, however, is the project is so close to completion that September may be too late to scrap the pipeline.

“We could well be done with the pipeline by September and, if the pipeline’s done, the gas will flow and I think it will be especially difficult to cut off the gas once you actually finish the pipeline. So, we’re at a very critical few months, weeks even, to determine whether this product is going to continue or not,” Berzina said.

Is Nord Stream 2 inevitable?

Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, told CNBC that the potential for further interventionist measures may yet prevent the delivery of Russian gas to Europe via Nord Stream 2.

When asked whether the completion of the pipeline was inevitable, Ash replied: “It seems that way, albeit given the threat from sanctions on insurance contracts I wonder whether any actual gas will be able to flow (through) the pipeline.”

A worker adjusts a pipeline valve at the Gazprom PJSC Slavyanskaya compressor station, the starting point of the Nord Stream 2 gas pipeline, in Ust-Luga, Russia, on Thursday, Jan. 28, 2021. Nord Stream 2 is a 1,230-kilometer (764-mile) gas pipeline that will double the capacity of the existing undersea route from Russian fields to Europe — the original Nord Stream — which opened in 2011.

Andrey Rudakov | Bloomberg | Getty Images

The nature of the dispute, Ash said, was partly about gas supplies to Europe, given the U.S. “clearly” wants to supply the continent with liquefied natural gas, but there are broader geopolitical concerns at play.

“It’s also the sense from the US, that Europe does not meet its security commitments. It asks the US for security guarantees, but at the first opportunity sells out to Russia,” he added.

Where do we go from here?

James Waddell, senior global gas analyst at Energy Aspects, told CNBC that U.S. sanctions will be “one of the main impediments” to the completion of Nord Stream 2.

Waddell cited measures taken last month when the U.S. announced targeted sanctions against Russian pipe-laying vessel Fortuna in a bid to delay the project. Notably, the measures stopped short of punishing any German or European firms aiding the construction of the pipeline.

Nonetheless, Russia has been trying to “Russia-fy” the project, Waddell said, effectively trying to insulate companies that don’t have dealings with the U.S., don’t have U.S. employees and don’t require access to dollar-based lending.

In practice, that means Russia finding its own vessels to do the actual physical work of laying the pipeline and transferring the assets and the pipeline vessels to Russian-owned companies.

Passers-by take pictures of the Russian pipe-laying vessel “Fortuna” on the pier, which is being towed out of the harbor onto the Baltic Sea by tugboats. The special ship is being used for construction work on the German-Russian Nord Stream 2 gas pipeline in the Baltic Sea.

Jens Büttner | picture alliance | Getty Images

Waddell said he had doubts about whether Moscow could insulate the project “in its entirety,” since many European companies are already tied up with the project and other international companies are likely to think twice about their involvement to avoid finding themselves on a U.S. sanctions list.

In addition, analysts at Energy Aspects said the withdrawal of the project’s main certification company in December was another “major” issue.

Norway-based DNV had been due to verify the safety and technical integrity of the pipeline system on completion but the risk management and quality assurance firm suspended its work on the project late last year amid fears of being sanctioned by the U.S.

“This project has all been built to those standards of that certification company and its maybe difficult to find another internationally recognized certification company to step in and certify this project as ready,” Waddell said. “And we think without that type of certification it may become difficult for any European regulator to actually allow flows through that pipeline.”

— CNBC’s Tom Chitty contributed to this article.

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Abu Dhabi eyes new partnerships for carbon capture as oil price climbs



DUBAI, United Arab Emirates — Oil rich Abu Dhabi and its national oil company are eyeing new partnerships in carbon capture technology as rising oil prices put a renewed focus on big oil’s climate mitigation strategies.

“There is no credible way of reaching global climate goals without seriously advancing and ensuring the widespread adoption of carbon capture and storage,” Sultan Al Jaber, UAE Minister of Industry and Advanced Technology and Abu Dhabi National Oil Company (ADNOC) Managing Director and Group CEO said over the weekend.

Carbon capture and storage (CCS) technology aims to reduce the level of carbon that’s released into the atmosphere through conventional power generation and industrial processes by storing waste carbon in a place where it won’t enter the atmosphere, typically underground. Long-term carbon storage is a fairly new concept, and its environmental, economic and technical aspects are still being debated. 

ADNOC, which pumps more than 3 million barrels of oil a day, has pledged to lower its greenhouse gas emissions and boost CO2 storage. It joins a long list of oil majors that have come under increasing pressure to speed up climate efforts as higher prices put the industry on a more sustainable path.

We continue to see it as a game changer, and we are very ready to partner with others within and even outside our industry to enable wider CCS adoption.

Sultan Al Jaber

UAE Minister of Industry and Advanced Technology and ADNOC Managing Director

“This goes beyond just the oil and gas industry,” Al Jaber said. “I see an opportunity and an important role for carbon capture and storage across sectors that are hard to decarbonize and that use the most energy, such as heavy industry, manufacturing and chemicals,” he added.

Al Jaber made the comments last week at a virtual CERAWeek panel session alongside Vicki Hollub, CEO of Occidental, and energy economist Dan Yergin, Vice Chairman of IHS Markit.

Oil prices spiked on Monday, with Brent crude topping $70 after an attack on Saudi oil facilities and after OPEC and its allies decided to keep production cuts in place in April. Higher prices are a boon for the key oil exporters of the Gulf, like Saudi Arabia and the UAE, which still rely heavily on oil export revenues to drive economic growth. Oil prices collapsed below zero and into negative territory in April last year.

Carbon partnerships

ADNOC recently partnered with French oil major Total to explore opportunities in CO2 emission reductions and CCS. It comes as the UAE aims to reduce its carbon intensity a further 25% over the next decade.

“We continue to see it as a game changer, and we are very ready to partner with others within and even outside our industry to enable wider CCS adoption,” Al Jaber said.

ADNOC, which has plans to aggressively ramp up oil production capacity in coming years, says it can capture 800,000 tons of carbon dioxide annually through its Al Reyadah facility in Abu Dhabi. As oil production capacity grows, it also plans to expand the capacity of the program to capture 5 million tons every year by 2030. 

“Carbon capture, utilization and storage (CCUS) will need to form a key pillar of efforts to put the world on the path to net-zero emissions,” the International Energy Agency said in a publication last year. “After years of slow progress, new investment incentives and strengthened climate goals are building new momentum behind CCUS,” it added. 

Al Jaber, who’s also the UAE’s special envoy for climate change, didn’t say what type of partnerships the company was seeking to form. ADNOC recently said its also exploring the potential of new fuels such as hydrogen, which Al Jaber said shows “great promise as a close to zero-carbon fuel” that could be produced at scale as part of ADNOC’s existing hydrocarbon value chain.

Demand recovery

Al Jaber also expressed optimism  on the positive impact of vaccines and stimulus programs on the global economic recovery, which feeds directly into oil demand.

“Looking regionally, we see that one of the major powerhouses of the global economy, China, has already recovered in GDP terms, and is back to robust growth,” he said. “We expect another key player in the global economy, the U.S., to return to its pre-Covid level of GDP this year and continue growing into 2022,” he added.

Al Jaber also pointed to the improving recovery in oil demand, which fell to lows of around 75 million barrels per day at the height of global lockdowns. “Global consumption is currently around 95 million barrels per day and we expect it to rise above pre-Covid levels by the end of this year,” he said.

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