In its lawsuit filed against crypto exchange Binance on Monday, the U.S. Securities and Exchange Commission alleged that several prominent cryptocurrenciesincluding Solana, BNB, and the native tokens for Polygon and Cardanoare securities.
This is a significant development for the crypto industry as the SECs decision to name a specific token as a security can make brokers reluctant to offer it, which can in turn depress its liquidity and its price.
The SECs new allegation, however, comes at a time when the legal status of many cryptocurrencies remains unclear. Currently, the SEC is jousting with a sister agency, the Commodity Futures Trading Commission, over whether the assets are securitiesas the SEC allegesor commodities, which comes with fewer regulatory obligations. This uncertainty has been a persistent concern for the crypto industry.
Under Chair Gary Gensler, the SEC has sought to expand the list of cryptocurrencies that fall under the security category, meaning they represent an investment contract and must register with the agency. Gensler has stated on several occasions that he believes nearly every cryptocurrency is a security, with the exception of Bitcoin.
In its lawsuit against Binance, the SEC alleges that the crypto exchange was offering unregistered securities, including two cryptocurrencies associated with the company: BNB, the exchange token for Binance, and BUSD, a Binance-branded stablecoin that the exchange launched with the U.S. crypto firm Paxos.
Many crypto industry participants accuse Gensler of regulation by enforcement, meaning that rather than engage in rule-making to create guardrails for the volatile sector, the SEC advances its positions through lawsuits and enforcement actions.
In mid-May, the crypto firm Grayscale announced that it had received a letter from the SEC alleging that another prominent cryptocurrency, Filecoins FIL, qualifies as a security, drawing criticism from the industry.
Mondays lawsuit vastly expands the SECs list of alleged securities, including some of the most prominent cryptocurrencies, including Solana and the native tokens of two popular blockchains, Cardano and Polygon.
Interesting. Grayscale had disclosed a few weeks ago that the SEC staff thinks FIL is a security. They have a Solana trust too; am I right that this is the first time the SEC has publicly taken this position w/r/t SOL? https://t.co/DvYUUKcivU https://t.co/NiQaetQIqF
Bank Reg Blog (@bank_reg) June 5, 2023
In the complaint, the SEC argues that Solanas deflationary model, powered by a burning mechanism, has led investors reasonably to view their purchase of SOL as having the potential for profit to the extent there is a built-in mechanism. The agency also cites promotional statements made by Solanas parent company to increase demand and value for its token.
Other cryptocurrencies described as securities in the complaint include Filecoins FIL, Sandboxs SAND, Decentralands MANA, and Algorands ALGO.
The price of Bitcoin, Solana and other tokens tumbled on Monday in the wake of the SEC lawsuit.
