How Will the Solana Class Action Play Out?

The crypto industry has long had to function under the uncertainty of whether tokens should qualify as securities. It is precisely that line of thinking that makes the Solana lawsuit important, with the implications of the trial having the power to potentially alter cryptocurrency forever. Because if SOL is declared a security, other tokens would fall under similar scrutiny, leading to assets being delisted by major platforms and other potential legal action.

It is not entirely unheard of, either. In 2020, the SEC sued Ripple for selling $1.3 billion of the asset, calling it an unregistered security. The result was XRP being delisted on major platforms.

The Solana lawsuit, filed in July, named Solana Labs, its CEO Anatoly Yakovenko, and the Solana Foundation. Also included in the class action are the venture capital firm Multicoin Capital, its CEO Kyle Samani, and the trading platform FalconX. 

The main plaintiff, Mark Young, said that he filed the lawsuit on behalf of all investors who bought the SOL token.

According to the lawsuit, the defendants made significant profits by selling SOL securities to retail investors in the US. In doing so, they violated the registration provisions of federal and state securities laws and caused major losses for investors.

It comes as no shock that investors are upset. SOL, which reached nearly $260 toward the end of last year, dropped down around 85%. And while losses occurred across the board with crypto assets, the lawsuit claims that SOL is highly centralized, with the insiders benefiting at the expense of investors.

The lawsuit also attributes much of SOL’s value to Solana Labs, its CEO, and the Solana Foundation. Apparently, they decided who would receive SOL securities and under which circumstances.

But the main issue is whether SOL — or crypto assets, in general — are securities. Not only is that likely to be a determining factor in the class action but also for crypto as a whole.

In the US, the Howey Test is the most common method to determine if an asset is a security. It asks if there is an investment of money in a common enterprise where there is an expectation of profits derived from the efforts of other people. The suit claims that SOL qualifies.

But crypto currently sits as somewhat of an exception due to its decentralized nature, which has been used as a reason not to consider it a security. Instead, it is generally looked upon as a commodity, falling under the purview of the Commodities Futures Exchange Commission (CFTC).

If Solana ends up being acknowledged as a security, it could open up the door for legal action on other crypto assets. It would also put a lot of pressure on those seen as part of the inner circle, such as Multicoin Capital and its CEO Kyle Samani.

Regardless of the outcome, the Solana class action is worth keeping an eye on. With hundreds of lawsuits concerning crypto existing as of earlier this year, it might not change anything, but it might also become the start of a major change in the crypto landscape.