Solana's Journey from Investment Contract to Cryptocurrency

FACTS

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

A. SOL

364. “SOL” is the native token of the Solana blockchain. The Solana blockchain was created by Solana Labs, Inc. (“Solana Labs”), a Delaware corporation headquartered in San Francisco that was founded in 2018 by Anatoly Yakovenko (“Yakovenko”) and Raj Gokal (Solana Labs’ current CEO and COO, respectively). According to Solana’s website, www.solana.com, the Solana blockchain is a network upon which decentralized apps (“dApps”) can be built, and is comprised of a platform that aims to improve blockchain scalability and achieve high transaction speeds by using a combination of consensus mechanisms.

365. According to Solana’s website, SOL may be “staked” on the Solana blockchain to earn rewards, and a certain infinitesimal amount of SOL must be “burned” to propose a transaction on the Solana blockchain, a common function for native tokens on blockchains that constitutes a method for cryptographically distributed ledgers to avoid a potential bad actor from “spamming” a blockchain by overwhelming it with an infinite number of proposed transactions.

366. Between May 2018 and early March 2020, Solana Labs filed with the SEC multiple forms claiming that its offers and sales of securities—what Solana described in those forms as the “sale and issuance of rights to receive Solana Labs, Inc. tokens in the future via a Simple Agreement for Future Tokens (SAFTs)”—were exempt from registration under Rule 506(c) of Regulation D under the Securities Act. Through these offers and sales of securities, Solana sold approximately 177 million SOL, raising over $23 million.

367. Later in March 2020, Solana Labs conducted additional SOL sales on the CoinList trading platform (www.coinlist.co) in a “Dutch auction” (wherein investors place bids and the entire offering occurs at the price with the highest number of bidders). During this offering, Solana Labs sold approximately 8 million SOL, at an average price of $0.22 per SOL, raising approximately $1.76 million. In August 2021, Solana Labs completed another, purportedly private sale of SOL, raising over $314 million from investors, each of whom paid for SOL with fiat currency and was required to sign a purchase agreement.

368. Beginning in February 2020, Solana Labs took steps to make SOL available for trading on crypto asset trading platforms. For example, in a September 17, 2020, Twitter post, Solana Labs stated: “The Solana community in the United States has been eagerly awaiting the chance to trade SOL on a U.S. exchange, and now that day has come. SOL/USDT, SOL/USD, and SOL/BTC pairs are all open for trading on @ftx_us.” In another Twitter post later the same day, Solana Labs stated: “@BinanceUS announces Support for SOL, making it the Second US Exchange to list SOL within one day.”

369. SOL has been available for buying, selling, and trading on the Binance.US Platform since September 2020, and the Binance.com Platform since April 2020.

370. The information Solana Labs publicly disseminated, including since the initial sales of SOL, led SOL holders, including those who purchased SOL since September 2020, reasonably to view SOL as an investment in and expect to profit from Solana Labs’ efforts to grow the Solana protocol, which, in turn, would increase the demand for and value of SOL.

371. Solana Labs stated publicly that it would pool the proceeds from its private and public SOL sales in omnibus crypto asset wallets that it controlled, and that it would use those proceeds to fund the development, operations, and marketing efforts with respect to the Solana blockchain to attract more users to that blockchain (potentially increasing the demand for, and therefore the value of, SOL itself, given the need for those who wish to interact with the Solana blockchain to tender SOL). For example, in connection with the 2021 private sale of SOL, Solana Labs stated publicly that it would use investor funds to: (i) hire engineers and support staff to help grow Solana’s developer ecosystem; (ii) “accelerate the deployment of market-ready applications focused on onboarding the next billion users into crypto”; (iii) “launch an incubation studio to accelerate the development of decentralized applications and Platforms building on Solana”; and (iv) develop a “venture investing arm” and “trading desk dedicated to the Solana ecosystem.”

372. As Solana Labs stated publicly, of the 500 million SOL tokens initially minted, 12.5% were allocated to Solana Labs’ founders, including Yakovenko and Gokal, and another 12.5% were allocated to the Solana Foundation, a non-profit organization headquartered in Zug, Switzerland “dedicated to the decentralization, growth, and security of the Solana network.” In fact, on April 8, 2020, Solana Labs transferred 167 million SOL tokens to the Solana Foundation, and in its public announcement of the Solana Foundation’s formation, Solana Labs stated, “The Foundation’s initial focus is expanding and developing the ecosystem of the Solana protocol.”

373. Solana Labs’ two original founders have worked for the Solana Foundation. Gokal currently serves as a member of the Solana Foundation Council. Yakovenko was a member and President of the Solana Foundation Council from its founding until December 2021, when he stepped down to focus on his work at Solana Labs.

374. In public statements on its website and social media pages, including statements made and available during the period when SOL was available to trade on the Binance Platforms, Solana specified its expertise in developing blockchain networks and described the efforts Solana and its founders had made and would continue to make to develop the Solana blockchain protocol and attract users to the technology, which, again, required those utilizing the technology to demand some amount of SOL.

375. Solana Labs undertook other promotional efforts to increase participation in its network and thus demand for SOL, including with: (a) a Solana podcast of which there have been at least 90 episodes since July 2019, with interviews of key Solana Labs management and other key personnel, including Yakovenko; (b) a YouTube channel with over 37,000 subscribers; and (c) dedicated Telegram, Twitter, Reddit, Solana Forums, Discord, GitHub, Meetup, and Weibo channels, with links to each available on Solana’s website.

376. The promotional statements that Solana Labs made in these fora with respect to SOL and Solana Labs’ efforts to increase demand and value for SOL included, for example:

a. A July 28, 2019 post on Solana Labs’ Medium blog in which Yakovenko stated that “Solana … supports upwards of 50,000 TPS” (transactions per second) “making it the most performant blockchain and the world’s first web-scale decentralized network” and that the “Solana team—comprised of pioneering technologists from [several high-profile technology companies]—has focused on building the tech required for Solana to function with these groundbreaking performance standards”;

b. Solana’s website statement that “Solana is engineered for widespread, mainstream use by being energy efficient, lightning fast, and extremely inexpensive” and that “[m]any of the core Solana builders, like co-founder Anatoly Yakovenko, have a background in building cell phone networks,” which “means that they are singularly focused on building for scalability (the ability to grow) and efficiency (the ability to get the most information across with the least amount of resources)”;

c. An April 14, 2021 post on gemini.com in which Yakovenko touted the Solana network’s ability to “support a theoretical peak capacity of 65,000 transactions per second, currently” (“around 10,000 times faster than Bitcoin, 4,000 times faster than Ethereum, and 35 times faster than Ripple—even around 2.5 times faster than Visa”) and projecting that such speed would “doubl[e] in capacity every two years with improvements in hardware and bandwidth”; and

d. A December 23, 2022 post on Solana’s website marketing various “upgrades” that Solana and its engineers would undertake, including “turbine optimizations” introduced by the “core engineering team,” which Yakovenko described as the “coolest piece of technology that we built that nobody knows about.”

377. Further, Solana Labs markets that it “burns” (or destroys) SOL tokens as part of a “deflationary model.” As Yakovenko explained in an April 14, 2021 article entitled “Solana (SOL): Scaling Crypto to the Masses” posted on gemini.com, “Solana transaction fees are paid in SOL and burnt (or permanently destroyed) as a deflationary mechanism to reduce the total supply and thereby maintain a healthy SOL price.” As explained on the Solana website, since the Solana network was launched, the “Total Current Supply” of SOL “has been reduced by the burning of transaction fees and a planned token reduction event.” This marketed burning of SOL as part of the Solana network’s “deflationary 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 to decrease the supply and therefore increase the price of SOL.