According to CLO Daniel Schoenberger, the team developed a “workable theory of how token transformation can be achieved” for DOT based on concerns from the SEC and federal securities laws.
The entity that supports Polkadot’s research and development, as well as overseeing fundraising efforts for the blockchain network, has argued that the United States Securities and Exchange Commission (SEC) should not consider the DOT token as a value under its scope of regulation.
In a blog post on November 4, the Web3 Foundation’s legal team leader, Daniel Schoenberger said that the native Polkadot token (DOT) had “transformed” and was “software” rather than a security. Schoenberger said the statement was “consistent with views” he had shared with the SEC following discussions that began in November 2019.
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“Although Polkadot’s vision had not contemplated that the native blockchain token be a security, we understood that the SEC’s view would likely be that the token to be delivered would be a security, at least at the time of delivery,” Schoenberger said. “Whatever it took to make DOT, the native token of the Polkadot blockchain, be—or 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 @SECGovW3F 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 been meeting regularly with the SEC’s fintech wing, FinHub, as part of Chairman Gary Gensler’s long-standing offer to crypto firms to “reach out and talk.” According to Schoenberger, the team developed a “feasible theory of how token transformation can be achieved” for DOT, based on SEC concerns and US federal securities laws.
Although the fundraiser said it has “shared this theory many times with the SEC” about DOT not qualifying as a security, it is unclear whether the federal regulator will respond to claims that appear to infringe on its jurisdiction. The SEC has often used controlling shares 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.
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Schoenberger’s resounding assertion that the DOT token should be considered outside of much of the SEC’s regulatory scrutiny mirrors that of many XRP (XRP) advocates. Ripple is currently locked in a legal battle with the SEC over allegations that the company, co-founder Christian Larsen, and CEO Brad Garlinghouse raised more than $1 billion through unregistered security sales using the XRP token. Ripple supporters have argued that the token was not a security and have criticized the SEC for overreaching its duties.
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