The Solana Foundation has formally replied to the U.S. Securities and Exchange Commission’s (SEC) designation of its native token, SOL, as a security. In a statement published on June 10, the foundation voiced its dissent against the SEC’s classification. It underscored the importance of well-defined regulations in digital assets.
According to the Solana Foundation, SOL is not a security, contrary to the SEC’s classification in lawsuits filed against Binance and Coinbase on June 5 and June 6, respectively, and the SEC based its classification on factors such as the expectation of profits derived from the efforts of others and the token’s usage and marketing.
Solana Foundation’s Response To SEC Security Classification And Its Implications On Solana Regulatory Landscape
The Solana Foundation recognized the importance of the SEC’s classification in a letter addressed to the Solana community, understanding that it would entail distinct regulatory obligations for SOL and its associated operations. The foundation affirmed its proactive approach by actively collaborating with legal professionals and maintaining ongoing communication with the SEC to tackle the concerns raised.
The SEC’s lawsuits against Binance and Coinbase listed SOL and nine other cryptocurrencies as securities. In the Binance lawsuit, the listed tokens included BNB, Binance USD, Cardano, Polygon, Cosmos, The Sandbox, Decentraland, Axie Infinity, and COTI. The Coinbase suit added six more tokens to the classification: Chiliz, Flow, Internet Computer, Near, Voyager Token, and Nexo.
The SEC considers an “investment contract” as part of the broader definition of security, encompassing digital assets. The SOL Foundation sold tokens through a Simple Agreement for Future Tokens (SAFT) to institutional investors and venture firms. This involved the issuance of securities, and private offering forms were filed with the SEC.
In March 2020, the foundation conducted an initial coin offering (ICO), publicly selling SOL tokens. They raised $1.76 million by allocating 8 million tokens to the public.
According to a commentary by a legal expert and Bloomberg contributor Matt Levine, previous instances of offering SOL as security should not result in the token being classified as a security. He stated,
“The fact that those tokens now trade publicly, with less disclosure and fewer investor safeguards than the SEC would like, is, from the SEC’s perspective, unfortunate. But it’s not exactly Solana’s fault, or rather it is Solana’s fault but in a perfectly legal way,”