Web3 Foundation to SEC: Polkadot (DOT) is not a Security

The organization coordinating fundraising for the blockchain and funding Polkadot’s research and development has claimed that the US Securities and Exchange Commission (SEC) shouldn’t classify the DOT token as a security subject to its regulatory jurisdiction.

According to a statement by the firm, they decided to try to take the SEC’s FinHub staff up on the offer to “come in and talk to them” in a bid to establish DOT as a utility.

The token is mere software.

According to CLO Daniel Schoenberger, the team created a workable hypothesis of how token morphing may be done for DOT based on the cryptocurrency’s watchdog, SEC, worries, and federal securities regulations.

Polkadot’s native token DOT had “morphed,” according to Daniel Schoenberger, chief legal officer of the Web3 Foundation Team, and was now “software” rather than a security. After starting talks with the SEC in November 2019, Schoenberger stated that the assertion was “compatible with the views” it had provided with the agency.

Schoenberger added that although the SEC’s perspective was probably that the to-be-delivered token would be a security, at least at the time of delivery, the Polkadot concept had not considered the blockchain’s native token would be a security. He adds, “We were prepared to do whatever it needed for DOT, the native token of the Polkadot blockchain, to be — or to become — a non-security.”

According to the CLO, the Web3 Foundation often engaged with FinHub, the SEC’s fintech division, as part of chair Gary Gensler’s ongoing invitation to cryptocurrency companies to “come in and speak.” 

Although the fundraising organization said it discussed this notion with the SEC several times regarding DOT not meeting the definition of a security, it is unknown how the federal regulator will respond to the accusations that appear to be under their authority. The SEC frequently bases regulations on enforcement actions. This was seen in a case against a former product manager at Coinbase, the agency expressly referred to nine tokens as “crypto asset securities” in July.

Three years of engagement with the SEC

The Web3 foundation reported that November 2022 marked its three-year engagement milestone with the SEC. The company has often met with the FinHub team over the past three years. By doing that, the web3 foundation claims that FinHub chose a compliance strategy comparable to theirs for technological development.

“The company goes on to say that it has “attempted to break new ground in our interactions with the SEC since the outset, complying with U.S. federal securities laws, including with respect to the offer and sale, marketing and delivery to initial purchasers of tokens as securities, and the treatment of retail purchasers, generally in line with public companies.”

The company claims to have had a good experience. The SEC has reportedly welcomed discussions with the foundation, and there has been an accessible communication and debate atmosphere. According to the foundation, these regular discussions have helped them better comprehend some of the SEC’s worries and have assisted them in coming up with ideas to deal with them.