SEC’s Mango settlement reiterates its case that SOL is a security

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In a Friday news dump, the SEC announced that it had settled its case with Mango Markets, a Solana-based DeFi platform that the SEC claims was trafficking in unregistered securities.

As part of the deal, Mango DAO and the related Blockworks Foundation (which, as funny as that would be, is not the same as the Blockworks media company sending you this newsletter) will have to pay up “nearly $700,000” in penalties and destroy their MNGO while also removing the native token of Mango Markets from other trading platforms.

The move was telegraphed after the DAO voted to allow for an SEC settlement a month ago. Five days ago, it also voted to settle with the CFTC, which means Mango DAO will likely be on the hook for even more settlement money soon. None of this is very surprising, as Mango has been in regulator crosshairs ever since Avi Eisenberg made off with $110 million in funds by employing a “highly profitable trading strategy” in 2022.

But in the settlement’s fine print, unveiled Friday, we got a renewed glimpse into the SEC’s case for SOL being a security.

In a section about “Crypto Assets that are Offered and Sold as Securities” near the end of the Mango Markets complaint, the SEC lays out the story of SOL: It was sold by Solana Labs to investors near the beginning of Solana’s existence to fund the development of the blockchain. In the time since, the SEC alleges, Solana Labs and the Solana Foundation have tried to “increase value and demand for SOL.”

Thus, SOL fails the Howey test, a measuring stick for securities that everyone deep in crypto knows by heart at this point: an investment of money in a common enterprise with an expectation of profits based on the efforts of others.

This Mango case basically rehashes the SEC’s argument regarding SOL in its 2023 complaint against Coinbase, which is still working its way through the courts. Once again, the SEC directly attacked the Solana Foundation’s claim of being a “non-profit foundation … dedicated to the decentralization, adoption, and security” of Solana.

“In fact,” the SEC writes, Solana Labs transferred 167 million SOL tokens to the foundation with the mandate of “expanding and developing the ecosystem of the Solana protocol.” The Solana Foundation did not return a request for comment.

The SEC’s case also probably needs some retooling however: In both the 2023 complaint and this one, the agency points to the network’s burn mechanism for transaction fees as a way Solana convinces investors that they should expect a profit from their investment. Solana validators recently voted to remove the burn mechanism for priority fees, which make up a large proportion of transaction fees, and Anza is now working to implement the change.

As a reminder, SOL potentially being a security is something of an existential issue for the network. Crypto platforms not named Prometheum aren’t set up to trade securities, and if the SEC succeeds with its current arguments, then it will be hard for US investors to buy or sell SOL.

This is all subject to change of course, especially following the presidential election. But in the current world, SOL investors will hope their tokens don’t go the way of MNGO.

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