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The Solana Foundation took to Twitter to address for the first time the US Securities and Exchange Commission’s classification of Solana’s native token (SOL) as a security.
“The Solana Foundation disagrees with the characterization of SOL as a security,” the June 10 statement said, noting that it welcomes policymakers’ involvement in achieving legal clarity in the digital asset space.
Solana’s native and utility token was publicly launched in March 2020. SOL holders stake the token in order to validate transactions through its consensus mechanism. The token can also be used to earn rewards, pay transaction fees, and enable users to participate in governance.
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 US building in the…
— Solana Foundation (@SolanaFndn) June 10, 2023
The SEC has labeled the SOL token as a security in two separate lawsuits filed on June 5 and 6 against cryptocurrency exchanges Binance and Coinbase, respectively. The classification is based on several factors, including the expectation of profits made from the efforts of others, as well as how tokens are used and traded.
“This classification is significant because it exposes Solana and related activities to a different set of rules and compliance requirements. […] we are actively engaging with legal experts and liaising with the SEC to understand and resolve their concerns,” the statement said. Foundation in a letter to its community.
Along with SOL, the SEC included nine other cryptocurrencies in the classification of securities in the Binance lawsuit: BNB (BNB), Binance USD (BUSD), Solana, Cardano (ADA), Polygon (MATIC), Cosmos (ATOM), The Sandbox (SAND), Decentraland (MANA), Axie Infinity (AXS) and COTI (COTI). In its lawsuit, Coinbase SEC named 13 cryptocurrencies, doubling the number of newly classified tokens and adding six more: Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP), Near (NEAR), Voyager Token (VGX), and Nexo (NEXO).
According to the SEC, the term “security” includes an “investment contract” as well as other instruments such as stocks, bonds, and transferable shares. “A digital asset must be analyzed to determine whether it has the characteristics of any product that meets the definition of a “security” under the federal securities laws,” reads the regulator’s guidance on analyzing digital assets as investment contracts.
The Solana Foundation has conducted private token sales in recent years, meaning it has sold securities to institutional investors and venture capital firms. Its private sales were reportedly conducted under a Simple Future Token Arrangement (SAFT), which is a security release for the eventual transfer of digital tokens from cryptocurrency developers to investors. As part of the token sale through SAFT, Solana also filed private offer forms with the SEC and investors were subject to a block.
The SOL Token Public Sale was held during the Solana Initial Coin Offering (ICO) in March 2020, which resulted in 8 million tokens being allocated to the public, or 1.6% of the initial token offering. This token sale raised $1.76 million for the Solana Foundation at $0.22 each.
In an article on recent developments, legal expert and Bloomberg contributor Matt Levin noted that previous SOL securities offerings should not now make the token a security. “The fact that these tokens are now publicly traded, with less disclosure and less guarantees for investors than the SEC would like, is unfortunate from the SEC’s point of view. But it’s not really Solana’s fault, or rather Solana’s fault, but completely legal,” he said.