How Binance Sold the ADA Token as an Unregistered Security

FACTS

VIII. THE CRYPTO ASSETS TRADED ON THE BINANCE.COM PLATFORM AND BINANCE.US PLATFORM INCLUDE ASSETS THAT WERE OFFERED AND SOLD AS SECURITIES.

B. ADA

378. “ADA” is the native token of the Cardano blockchain. The Cardano blockchain was created in 2015 by an Ethereum co-founder, Charles Hoskinson, and an Ethereum operations manager, Jeremy Wood. As described on Cardano’s website, the Cardano blockchain protocol is built on its own proof-of-stake consensus protocol called Ouroboros, which is purportedly energy efficient. Hoskinson and Wood created ADA and purported to limit the supply of ADA to 45 billion. From 2015 to 2017, Input Output Hong Kong (“IOHK”), a company founded by Hoskinson and Wood, conducted a token sale during which they sold approximately 25.9 billion ADA in exchange for bitcoin, at what equates to an average price of $0.0024 per token, raising approximately $62 million for Cardano.

379. Today, three entities are responsible for Cardano: (1) the Cardano Foundation, a Swiss entity that is the legal custodian of the Cardano protocol and owner of its brand; (2) IOHK, an engineering company controlled by Hoskinson and Wood responsible for designing, building, and maintaining the Cardano blockchain; and (3) Emurgo, an entity with offices in New York and California that, according to its website, is “essentially the for-profit arm of Cardano,” endeavoring “to advance the platform and drive adoption through commercial ventures.” As explained on the Cardano website, “IOHK develops the technology, the Cardano Foundation is responsible for supervising development and promoting Cardano, while Emurgo drives commercial adoptions.” These three entities collectively received 5.2 billion ADA following the initial mining of ADA, or approximately 16.7% of the initial token supply of 31.1 billion ADA.

380. These three entities have used the proceeds from ADA sales to fund the development, marketing, business operations, and growth of the Cardano protocol. For example, investor funds were used to enact the Cardano Roadmap created by IOHK—specifically, to develop each of the Cardano development “eras” as shown in the following screenshot from the Cardano website:

381. ADA has been available for buying, selling, and trading on the Binance.com Platform since November 2017, and the Binance.US Platform since September 2019.

382. The information publicly disseminated by Cardano, IOHK, and Emurgo— including since the initial sales of ADA—have led ADA holders, including those who purchased ADA since November 2017, reasonably to view ADA as an investment in and expect to profit from the Cardano Foundation’s, IOHK’s, and Emurgo’s efforts to grow the Cardano platform, which, in turn, would increase demand for and value of ADA.

383. In public statements on Twitter and other social media, as well as on their respective websites, including statements made and available during the period when ADA was available to trade on the Binance Platforms, the Cardano Foundation, IOHK, and Emurgo have specified their expertise in developing blockchain networks and described the efforts they have made and will continue to make to develop the Cardano protocol and blockchain and attract users to the technology, including but not limited to: (a) an announcement by IOHK in or around September 2021 about the creation of smart contracts on the protocol, which supposedly would “pav[e] the way” for additional demand for the blockchain protocol; (b) a blog post by IOHK in or around November 2022 describing its efforts to introduce “innovations, new functionality, and new features” to the blockchain; and (c) a blog post by IOHK on or around November 17, 2022 touting ADA being “hosted on more than 30 cryptocurrency exchanges,” and outlining IOHK’s plans to "improv[e] the underlying performance of the Cardano network to better support growth and adoption of thousands of applications with high transaction volumes” while giving specific examples of how this would be achieved.