The Solana Foundation has recently addressed the United States Securities and Exchange Commission’s classification of its native token, Solana (SOL), as security through a Twitter statement.
In the statement released on June 10, the foundation disagreed with characterising SOL as security. It emphasised the importance of engaging with policymakers to establish clear legal guidelines within the digital assets space.
Solana’s native and utility token was initially launched to the public in March 2020. SOL holders use the token for transaction validation through its consensus mechanism. The token is also used to pay transaction fees and participate in governance activities.
The Solana Foundation disagrees with the characterization of SOL as a security. We welcome the continued engagement of policymakers as constructive partners on regulation to achieve legal clarity on these issues for the thousands of entrepreneurs across the U.S. building in the…
— Solana Foundation (@SolanaFndn) June 10, 2023
The SEC has recently filed two separate lawsuits on June 5 and June 6 against cryptocurrency exchanges Binance and Coinbase, respectively, labelling the SOL token as a security. This classification is based on various factors, including the expectation of profits derived from the efforts of others, as well as the usage and marketing of the tokens.
In response to this classification, the Solana Foundation addressed its community in a letter, acknowledging the classification’s significance and its implications. The foundation stated that it is actively collaborating with legal experts and communicating with the SEC to understand and address their concerns.
Alongside SOL, the SEC’s lawsuits also mentioned other tokens, including ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO, as securities.
According to the SEC, the term “security” encompasses an “investment contract” and other instruments like stocks, bonds, and transferable shares. The regulator guides analysing digital assets as investment contracts to determine if they meet the definition of a security under federal securities laws.
In previous years, the Solana Foundation conducted private sales of tokens, selling securities to institutional investors and venture firms. These sales were executed through a simple agreement for future tokens (SAFT), 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 token sales, and investors were subject to lockups.
During Solana’s initial coin offering in March 2020, a public sale of SOL tokens took place, allocating 8 million tokens to the public, which accounted for 1.6% of its initial token supply. This public sale raised $1.76 million for the Solana Foundation, with each token priced at $0.22.
In an opinion piece discussing these recent developments, legal expert and Bloomberg contributor Matt Levine highlighted that previous securities offerings of SOL should not automatically categorise the token as a security now. He pointed out that while the SEC may find the current trading of these tokens unfortunate due to less disclosure and investor safeguards, it is not solely the fault of Solana but rather a consequence of legal circumstances.