The U.S. Securities and Exchange Commission (SEC) has raised allegations against Solana Labs, Inc. stating that $SOL, the native token of the Solana blockchain, should be considered a security. The SEC’s filing presents multiple reasons for its stance, including:
Fundraising via token sales: The SEC mentions that Solana Labs raised a significant amount of funds through SOL token sales. Between 2018 and 2020, the company sold approximately 177 million SOL, generating over $23 million. These funds were raised through a Simple Agreement for Future Tokens (SAFT) process, which Solana Labs filed with the SEC, claiming exemption from registration under Rule 506(c) of Regulation D under the Securities Act.
Perception of SOL as an investment: The SEC argues that public information disseminated by Solana Labs led purchasers of SOL to reasonably view SOL as an investment and expect to profit from Solana Labs’ efforts to grow the Solana protocol. This growth was expected to increase the demand for, and therefore, the value of, SOL.
Use of funds raised through SOL sales: According to the SEC, Solana Labs publicly declared that proceeds from SOL sales would be used to fund the development, operations, and marketing efforts of the Solana blockchain. This, in turn, would potentially increase the demand for SOL, given its integral role in the blockchain’s operation.
Promotional activities to increase demand for SOL: Solana Labs actively engaged in various promotional activities to drive participation in its network and increase demand for SOL. These activities included maintaining a robust online presence with a podcast, a YouTube channel, and several social media platforms.
Allocation of SOL tokens: The SEC highlights that of the 500 million SOL tokens initially minted, 12.5% were allocated to Solana Labs’ founders, and another 12.5% were allocated to the Solana Foundation, a non-profit organization dedicated to the growth and security of the Solana network.
Token burn mechanism: Solana Labs has marketed the concept of “burning” SOL tokens as a deflationary model to maintain a healthy SOL price. This concept would reduce the total supply of SOL, potentially increasing its price – another factor contributing to the perception of SOL as an investment.
The SEC is therefore arguing that for these reasons, SOL meets the criteria of an investment contract and should thus be considered a security, subject to the regulatory framework for securities.