The Solana Foundation has publicly objected to the recent designation by the US Securities and Exchange Commission (SEC) 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 requirements. The ranking is based on several factors, such as the expectation of profits generated by third-party efforts, as well as how the tokens are used and promoted.
In a statement, the Solana Foundation disagreed with the SEC’s view, saying it welcomes dialogue with policymakers to clarify the legal status of digital assets. The Foundation also indicated its active cooperation with legal experts and continuous contact with the Supreme Education Council to address their concerns.
The Solana SOL utility token, which first appeared in March 2020, serves multiple functions within its network. SOL holders can participate in their tokens to validate transactions through its consensus mechanism, receive rewards, pay transaction fees, and participate in governance.
Notably, the SEC security token was attached to the SOL token in two lawsuits filed against cryptocurrency exchanges Binance and Coinbase on June 5 and June 6, respectively.
In the past, the Solana Foundation has engaged in private sales of tokens to institutional investors and venture firms, reportedly under a Simple Agreement for Future Tokens (SAFT), a security issuance mechanism for transferring digital tokens from developers to investors. After these sales, the foundation filed special offering forms with the Securities and Exchange Commission.
Furthermore, during the Solana ICO in March 2020, the public sale of SOL tokens took place, with 8 million tokens (1.6% of the initial offering) allocated to the public at $0.22 each, raising $1.76 million for the Solana Foundation.
Bloomberg contributor and legal expert Matt Levine provided his view on the controversy in the article titled “When is a token, not security?”, considering that SOL’s previous securities offerings should not necessarily define a token as a security now. He said that while the SEC may find the current public trading of SOL tokens without adequate disclosure and investor guarantees regrettable, it is not Solana’s direct responsibility.
This development highlights the ongoing debates and challenges in providing clear regulations for digital assets.