Solana Foundation Denies SOL’s Classification as a Security

The Solana Foundation Denies SEC’s Classification of SOL Token as a Security

The Solana Foundation took to Twitter to address for the first time the United States Securities and Exchange Commission’s classification of its native token, Solana (SOL), as a security. The foundation disagrees with this characterization and emphasizes the need for legal clarity in the digital assets space.

Nature and Utility of Solana’s SOL Token

Solana’s native token, SOL, was publicly launched in March 2020. The token serves as both a utility and governance token within the Solana ecosystem. SOL holders stake the token to validate transactions through the consensus mechanism, receive rewards, pay transaction fees, and participate in governance.

SEC’s Classification of SOL Token and Other Cryptocurrencies

The SEC has classified SOL and several other cryptocurrencies as securities in separate lawsuits filed against crypto exchanges Binance and Coinbase. The classification is based on factors such as the expectation of profits derived from the efforts of others and how the tokens are being used and marketed.

In Binance’s lawsuit, the SEC listed SOL, BNB, BUSD, Cardano (ADA), Polygon (MATIC), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS), and COTI (COTI) as securities. In the Coinbase suit, the SEC named 13 cryptocurrencies, including the aforementioned tokens and Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager Token (VGX), and Nexo (NEXO).

Understanding the SEC’s Definition of a Security

According to the SEC, the term “security” encompasses various financial instruments, including investment contracts, stocks, bonds, and transferable shares. The regulator emphasizes the need to analyze digital assets to determine if they meet the definition of a security under federal securities laws.

Solana Foundation’s Past Token Sales

The Solana Foundation conducted private sales of tokens in the past, which involved the sale of securities to institutional investors and venture firms. These private sales were performed through a simple agreement for future tokens (SAFT) and required filing private offering forms with the SEC. Investors were also subject to lockup periods.

Additionally, a public sale of SOL tokens took place during Solana’s initial coin offering in March 2020, allocating 8 million tokens to the public. This sale raised $1.76 million for the Solana Foundation.

Legal Perspective on SOL Token’s Classification

In an opinion piece, legal expert Matt Levine emphasized that previous securities offers of SOL should not automatically classify the token as a security now. He noted that the trading of tokens publicly with less disclosure and investor safeguards than preferred by the SEC is a legal matter and not solely Solana’s responsibility.