The Solana Foundation has publicly objected to the United States Securities and Exchange Commission’s (SEC) recent classification of its native cryptocurrency, Solana (SOL), as a security.
The SEC’s designation of the SOL token as a security is pivotal as it imposes an additional set of regulatory and compliance demands. The classification is hinged on several factors, such as the anticipation of profits originating from third-party efforts, as well as how the tokens are utilized and promoted.
In a statement, the Solana Foundation voiced its disagreement with the SEC’s view, expressing that it welcomes dialogue with policymakers to clarify the legal standing of digital assets. The Foundation also mentioned its active collaboration with legal experts and ongoing communications with the SEC to address their concerns.
Solana’s utility token SOL, which debuted in March 2020, serves multiple functions within its network. SOL holders can stake their tokens to validate transactions through its consensus mechanism, receive rewards, pay transaction fees, and engage in governance.
Notably, the SEC’s security label was attached to the SOL token in two lawsuits filed against crypto exchanges Binance and Coinbase on June 5 and June 6 respectively.
In the past, the Solana Foundation engaged in private sales of tokens to institutional investors and venture firms, reportedly under a simple agreement for future tokens (SAFT), which is a security issuance mechanism for transferring digital tokens from developers to investors. Following such sales, the Foundation filed private offering forms with the SEC.
Moreover, during Solana’s initial coin offering in March 2020, a public sale of SOL tokens took place, with 8 million tokens (1.6% of the initial supply) allocated to the public at $0.22 each, raising $1.76 million for the Solana Foundation.
Bloomberg contributor and legal expert, Matt Levine, offered his view on the controversy in the article titled “When Is a Token Not a Security?”,opining that earlier securities offers of SOL should not necessarily define the token as a security now. He argued that while the SEC might find the current public trading of SOL tokens without adequate disclosure and investor safeguards regrettable, it is not directly Solana’s liability.
This development highlights the ongoing debates and challenges in providing clear regulations for digital assets.