According to CLO Daniel Schoenberger, the team developed a “workable theory of how token morphing may be achieved” for DOT based on the SEC’s concerns and federal securities laws.
The entity supporting research and development of Polkadot as well as overseeing fundraising efforts for the blockchain has argued that the United States Securities and Exchange Commission should not consider the DOT token a security under its regulatory purview.
In a Nov. 4 blog post, the Web3 Foundation Team’s chief legal officer Daniel Schoenberger said Polkadot’s native token (DOT) had “morphed” and was “software” rather than a security. Schoenberger said the claim was “consistent with the views” it had shared with the SEC following discussions it began in November 2019.
“While the Polkadot vision had not contemplated that the blockchain’s native token would be a security, we understood that the SEC’s view was likely to be that the to-be-delivered token would be a security, at least at the time of delivery,” said Schoenberger. “Whatever it took in order for DOT, the native token of the Polkadot blockchain to be — or to become — a non-security, we were willing to do it.”
Web3 Foundation announces @Polkadot‘s native token DOT has morphed and is software, not a security!
After 3 years of proactive engagement with the @SECGov, W3F announces a landmark step towards the achievement of Web 3.0, a decentralized, trustless, serverless internet.
— Web3 Foundation (@Web3foundation) November 4, 2022
The CLO said the Web3 Foundation had met regularly with the SEC’s fintech wing, FinHub, as part of chair Gary Gensler’s long-standing offer to crypto firms to “come in and talk.” According to Schoenberger, the team developed a “workable theory of how token morphing may be achieved” for DOT based on the SEC’s concerns and U.S. federal securities laws.
Though the fundraising entity said it “shared this theory many times with the SEC” on DOT not qualifying as a security, it’s unclear whether the federal regulator will respond to the claims seemingly infringing on their purview. The SEC has often used enforcement actions as a basis for regulation — in July, the regulator specifically identified nine tokens as “crypto asset securities” in a case against a former product manager at Coinbase.
Schoenberger’s outright claim that the DOT token should be considered outside much of the regulatory control of the SEC mirrors that of many XRP (XRP) advocates. Ripple is currently engaged in a legal battle with the SEC over allegations the firm, co-founder Christian Larsen, and CEO Brad Garlinghouse raised more than $1 billion through unregistered securities sales using XRP. Ripple’s supporters have argued that the token was not a security and criticized the SEC for overreaching its authority.