Encryption venture capital faces risks in Toncoin investment, founder's arrest raises concerns

Recently, the founder of a well-known instant messaging application was detained in France, an event that has caused quite a stir in the cryptocurrency investment circle. Several institutions that invested in the digital token Toncoin related to this application now face potential risks.

It is reported that more than ten institutions, including Pantera Capital Management, have invested in Toncoin. A well-known instant messaging application uses its underlying blockchain to handle instant payments and other services. According to sources, the large encryption venture capital fund Pantera invested over $100 million in Toncoin earlier this year.

Investors have high expectations for Toncoin, hoping that this instant messaging application can evolve into a "super application" for digital assets similar to WeChat, allowing 900 million users to rely on Toncoin for payments, gaming, and more. From February to early July this year, the price of Toncoin surged fourfold, and the total locked value on its blockchain TON once exceeded $1 billion.

However, the founder was detained for being accused of ineffectiveness in combating platform crimes, exposing potential risks. On August 29, he was charged with participating in the dissemination of illegal content and other criminal activities. The application issued a statement claiming to comply with European laws.

After the founder was arrested on August 24 in the suburbs of Paris, the price of Toncoin plummeted by about 20%, and then rebounded somewhat. According to data platforms, the total locked value of TON has dropped to $573 million.

The founder of the encryption venture capital firm 1kx stated: "Most investors believe that the application itself will greatly promote the adoption of the Toncoin network. Now the founder is facing a black swan event, which may raise some questions about the future."

Venture capitalists making large investments in Toncoin (usually signing agreements not to sell tokens for at least a year) are evaluating whether the actions against the founders in France will lead to user attrition. The app is very popular in the encryption community, largely due to its lenient management style, but this has also led the founders into legal disputes.

Pantera claims that Toncoin is its largest investment, but did not disclose the specific amount. The foundation responsible for managing the blockchain stated that it has never raised funds. Other investment institutions have not commented on the investment or responded to inquiries.

Some Toncoin supporters believe this is an "opportunity". A certain encryption market maker spent "millions" of dollars buying Toncoin on the open market after the price of Toncoin plummeted.

Venture capital firms refer to their off-exchange investments in projects like TON as "token trading", where investors receive tokens instead of traditional stocks. Venture capitalists typically set up independent vehicles to hold these assets. Since most token trading is conducted on a one-to-one basis, it is difficult to accurately estimate its popularity.

For venture capital firms and their investors, token trading has several advantages, the most obvious being the ability to exit more quickly. A common structure is that tokens begin to unlock after 12 months, after which investors can gradually sell. The volatility of tokens also allows supporters to gain a more comprehensive understanding of the project's progress.

Token trading often involves significant discounts. Insiders say that Pantera bought Toncoin at a price 40% below the market rate at that time. Based on the average price of $6.32 announced in May, this investment is still profitable. Pantera's lock-up period is one year, after which it can sell Toncoin in batches over the next few years.

Another characteristic of token investment is the extreme volatility of assets, which becomes immediately apparent once a problem arises. Funds typically value their held assets based on market capitalization at regular intervals, and a significant price drop will be directly reflected in reports to limited partners.

A typical case is the collapse of a stablecoin project in May 2022. Just a few months prior, several investors had purchased over $1 billion worth of related tokens. When the stablecoin collapsed, these tokens became worthless, triggering a chain reaction throughout the entire encryption industry.