A class-action lawsuit has been filed against layer-1 blockchain Solana (SOL) on the grounds that the smart contract platform is not as decentralized as advertised.
In a court filing dated July 1st, Solana investor Mark Young alleges SOL cannot fit the definition of “decentralized” when nearly half of its supply is in possession of people close to the project.
“Contrary to Defendants’ public representations, however, SOL is not decentralized, because company insiders hold a substantial percentage of them.
As of May 2021, insiders held 48% of the SOL supply. The network is thus highly centralized.”
The suit also claims Solana is in violation of US law regarding the sale of unregistered securities and invokes the Howey Test, a four-part metric established by the Supreme Court to determine whether or not a particular transaction qualifies as an investment contract.
“The sale of SOL securities constituted the sale of unregistered securities under controlling federal law.
SOL securities exhibit the following particular hallmarks of a security under the Howey Test:
(a) in order to receive any SOL securities, an investment of money was required;
(b) the investment of money was made into the common enterprise that is Solana; and
(c) the success of the investment and any potential returns on such were entirely reliant on Solana and [Anatoly] Yakovenko’s ability to create the promised network.”
According to the lawsuit, applicable dates where investors were affected range from March 24th of 2020, when eight million SOL were sold via Dutch auction for $0.22 each, through the suit’s filing date.
The suit also takes issue with discrepancies about the SOL circulating supply throughout 2021, during which SOL skyrocketed from less than $2 to as high as $258 before falling below $175 by year’s end.
At time of writing, Solana is priced at $38.53, marking an 85% tumble from its all-time high.
The full list of defendants includes Solana Labs, The Solana Foundation, CEO Anatoly Yakovenko, cryptocurrency investor Multicoin Capital Management and its co-founder Kyle Samani, and the FalconX crypto trading platform.
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