The Solana Foundation has recently stated on Twitter addressing the U.S. Securities and Exchange Commission’s (SEC) classification of its native token, Solana (SOL), as a security. The foundation expressed disagreement with the characterization of SOL and emphasized its commitment to engaging with policymakers to achieve legal clarity in the digital assets space.
Solana Foundation rejects SEC’s classification of SOL
SOL, Solana’s native and utility token, was publicly launched in March 2020. Token holders stake SOL to validate transactions through Solana’s consensus mechanism. Additionally, the token offers various utility functions such as receiving rewards, paying transaction fees, and enabling users to participate in governance.
The SEC, in separate lawsuits filed against Binance and Coinbase on June 5 and June 6 respectively, classified the SOL token as a security. This classification is based on factors including the expectation of profits derived from the efforts of others, as well as how the tokens are being used and marketed.
The Solana Foundation acknowledges that this classification subjects Solana and associated activities to a different set of regulations and compliance requirements. In response, the foundation stated its active engagement with legal experts and ongoing communication with the SEC to understand and address their concerns.
Alongside SOL, the SEC also listed nine other cryptocurrencies, including BNB, Binance USD, Cardano, Polygon, Cosmos, The Sandbox, Decentraland, Axie Infinity, and COTI, in the lawsuit against Binance. In the Coinbase lawsuit, the SEC named 13 cryptocurrencies, including newly classified tokens such as Chiliz, Flow, Internet Computer, Near, Voyager Token, and Nexo.
The SEC defines the term “security” to include an “investment contract,” encompassing instruments like stocks, bonds, and transferable shares. The regulator guides analyzing digital assets as investment contracts, emphasizing the need to assess whether a digital asset exhibits characteristics of security under federal securities laws.
The foundation says it will address concerns about its token
The Solana Foundation had conducted private sales of tokens in previous years, involving the sale of securities to institutional investors and venture firms. These private sales were reportedly conducted through a simple agreement for future tokens (SAFT), which is a security issue for the eventual transfer of digital tokens from developers to investors. The foundation also filed private offering forms with the SEC for these sales, and investors were subject to lockups.
During Solana’s initial coin offering (ICO) in March 2020, a public sale of SOL tokens was held, allocating 8 million tokens, or 1.6% of the initial token supply, to the public. The sale raised $1.76 million for the Solana Foundation, with each token priced at $0.22.
Legal expert and Bloomberg contributor Matt Levine commented that the previous securities offerings of SOL should not automatically classify the token as a security now. He noted that while the SEC may consider the public trading of these tokens with fewer safeguards as unfortunate, it is not Solana’s fault, but rather a consequence within legal boundaries.
As the Solana Foundation and the SEC continue their engagement, the classification of SOL as a security raises implications for the regulatory landscape surrounding digital assets. Industry participants will be closely following the developments in this case and the potential impact on the broader crypto market.
