The Solana Foundation used Twitter to make their first statement regarding the U.S. Securities and Exchange Commission’s designation of the Solana (SOL) token as a security.
The Solana Foundation has expressed its disagreement with the description of SOL as a security, and has further welcomed the involvement of policymakers to achieve legal clarity in the realm of digital assets. This statement was made on June 10.
In March 2020, Solana’s native and utility token was released to the public. SOL holders stake the token to validate transactions via its consensus protocol. The token can also be used to get rewards, pay for transaction fees, and allow users to be involved in governance.
The SEC has identified the SOL token as a security in two different legal actions initiated on June 5th and 6th against crypto trading platforms Binance and Coinbase, respectively. This classification is based on various factors, such as the expectation of profits from the efforts of others, as well as the manner in which the tokens are being employed and promoted.
“The importance of this categorization lies in the fact that it puts Solana and related actions under a different set of rules and compliance criteria. […] We are currently in dialogue with legal professionals and are in contact with the SEC to comprehend and address any worries they may have,” the Foundation conveyed in a note to its supporters.
Along with SOL, the SEC included nine other cryptocurrencies in the securities’ classification for the Binance lawsuit: BNB (BNB), BUSD, Solana, ADA, MATIC, ATOM, SAND, MANA, AXS and COTI. In its Coinbase suit, the SEC further added six tokens to the newly classified ones, those being CHZ, FLOW, ICP, NEAR, VGX and NEXO.
The Securities and Exchange Commission (SEC) has stated that the definition of a “security” encompasses not only “investment contracts,” but also stocks, bonds, and transferable shares. Moreover, the SEC has provided guidance for analyzing digital assets as investment contracts, noting that they should be evaluated to determine if they possess any characteristics of a security as defined by federal securities laws.
The Solana Foundation conducted private sales of tokens in prior years, offering securities to institutional investors and venture capital firms. It is said that these private sales were done via a Simple Agreement for Future Tokens (SAFT), a security issuance that would eventually transfer digital tokens from crypto developers to investors. Furthermore, Solana filed private offering forms with the SEC in connection with token sales through a SAFT, and investors were subject to lockups.
A public sale of SOL tokens was conducted during Solana’s initial coin offering (ICO) in March 2020, which allocated 8 million tokens, or 1.6% of its initial token supply, to the public. This sale of tokens brought in $1.76 million for the Solana Foundation, with each token priced at $0.22.
In a recent opinion piece, legal expert and Bloomberg contributor Matt Levine argued that the prior securities offerings of SOL should not render the token a security in the present. “The SEC may not be pleased that these tokens are now trading publicly with less disclosure and fewer investor protections than desired,” he noted, “but this is not necessarily Solana’s fault – it’s a perfectly legal outcome.”
Does SEC Chair Gary Gensler have the ultimate authority when it comes to crypto regulation?
Subscribe to our email newsletter to get the latest posts delivered right to your email.