I agree, as I mentioned in an above comment, I feel like the ads will be something like FB's promoted posts that show highlighted ads of things your friends like.

To me, this sort of ad in the IG stream using photos my friends took at restaurants/venues, saying that 'my friend recently went to X place' seems like a pretty engaging ad that I'd like to see. I already look at my friends' photos, so having one show up again promoting a restaurant I might like to go to wouldn't a big deal to me.

But as you mentioned, I just don't know what the TOS actually allows for, so I'm only speculating.