Solana is a centralized blockchain, investors claim in class actions
Solana Labs, the entity behind the Solana blockchain, as well as other key players in the Solana ecosystem, are being sued in a federal court in California by an investor who claims to have earned illegally on SOL, the blockchain’s original token.
Solana Labs is accused of violating securities laws and is very centralized
A class action lawsuit filed in the California Federal Court accuses major parties in the Solana ecosystem of violating the Securities Act by launching unregistered collateral. The case described SOL as a highly centralized cryptocurrency that has benefited its insiders at the expense of investors. The lawsuit states:
“The cornerstone of the value of SOL securities is the sum of Solana Labs, Solana Foundation and Yakovenko’s management and implementation of the Solana blockchain. They created Solana blockchain networks and all SOL securities in circulation, and similarly decided who should receive SOL values and under what conditions. “
Filed by Mark Young, a resident of California, the lawsuit is called Solana Labs, Solana Foundation, Solana’s co-founder Anatoly Yakovenko, crypto VC giant Multicoin Capital, co-founder of Multicoin Capital Kyle Samani, and trading desk FalconX as defendants. Young claims that he bought SOL in August and September 2021.
In the complaint, Young said that the way SOL was created and sold meets the three principles of the Howey test, a case used by the US Supreme Court to determine whether a transaction qualifies as an “investment contract”, and thus will be considered a security and subject to detection and registration. The submission said:
“Buyers who bought SOL securities have invested money or provided valuable services to a joint venture, Solana. These buyers have a reasonable expectation of profit based on the efforts of the organizers, Solana Labs and Solana Foundation, to build a blockchain network that will compete with Bitcoin and Ethereum and become the accepted framework for transactions on the blockchain. ”
In an accompanying press release, the law firm Roche Freedman said that Young’s claim was filed as a class action lawsuit on behalf of himself and other SOL investors who bought the coin after March 24, 2020. The firm has also recently filed a lawsuit against Binance.US for allegedly misleading investors under the collapse of the Terra ecosystem.
Join our Telegram group and never miss a story about digital values.
The controversy surrounding Solana’s decentralization
Young claimed that the Solana network is “highly centralized”, contrary to Solana Labs’ claims that the network is decentralized. He claims that insiders had 48% of the SOL supply in May 2021.
He also touched on Solana’s “devastating” interruption in the complaint. As reported, Solana was shut down for the 7th time in May. Prior to this, the network suffered a five-hour break in December 202 and an eighteen-hour break in September 2021. It also suffered a DDOS attack in early January.
Typically, the team had to upgrade and restart the network to resolve the issue after a power outage. This made some in the crypto community suspicious of the project’s decentralization, even before the complaint.
It remains to be seen how a class action lawsuit unfolds. However, it is worth noting that the allegations of securities breaches are similar to the many other crypto companies have faced in recent years, especially the one Ripple has struggled with.
Ripple was sued by the SEC in December 2020 due to allegations that the company, CEO Brad Garlinghouse and CEO Chris Larsen engaged in illegal security offers through the sale of XRP. On the other hand, Ripple argues that XRP should be treated as a virtual currency instead of an investment contract.
Economy is changing.
Find out how, with Five Minute Finance.
A weekly newsletter covering the major trends in FinTech and decentralized finance.
Do you think Solana can also end up in a battle similar to Ripple? Let us know in the comments below.
About the author
Ruholamin Haqshanas is a skilled crypto and financial journalist with over two years of experience in writing in the field. He has a solid grip on various segments of the FinTech area, including decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFT). He is an active user of digital assets for money transfers.
