Since the crash of the crypto market in late spring 2022, Solana has taken a massive reduction in price. The dip can be attributed to the negative trends looming over the entire crypto market, however there are still issues plaguing the network itself that have also become a factor for the blockchain. 

A new lawsuit, filed by a Solana investor named Mark Young, states that the Solana network is a centralized network that has falsely misled retail investors for their own profits. While the lawsuit seems like a bad attempt to recover losses from a poor investment, the underlying argument does mirror a similar fight between XRP and the SEC.

Solana Lawsuit

The lawsuit against Solana states that the network is selling unregistered securities to customers. Further, it claims that the Solana Labs team has misled consumers on the data they’ve provided to the public about their supply of tokens. 

The claim explicitly states that Solana Labs “made enormous profits through the sale of SOL securities to retail investors in the United States, in violation of the registration provisions of federal and state securities laws, and the investors have suffered enormous losses.” 

Solana Network Issues

Although Mark Young appears to be a jaded trader down on his investments, there is still some legitimacy to his claim about the network's structure. It is well known that the Solana network, despite its claims of high technical quality, goes down often. 

These frequent interruptions have a serious impact on the Solana community. The NFT ecosystem, led by Magic Eden, on Solana is highly active. By turning off the network, the Solana Labs team is actively controlling the blockchain in a centralized manner. 

Contrast from XRP Lawsuit

The legal action taken by Mark Young is bringing up an interesting comparison to the XRP lawsuit which is disputing an entirely different claim of being a security. 

XRP, who are defending themselves against the SEC, are claiming that cryptocurrencies are not securities at all and that it is unjust to regulate them as such under the SEC’s authority. 

They are arguing that their token is a commodity and a utility which would be better regulated through the CFTC or a new crypto-specific department. 

Is crypto a security or commodity?

The categorization of cryptocurrencies has been a struggle for the past decade. Due to its technical nature, blockchain tokens are currencies. However, there is a large amount of people that believe crypto is better used as a store of value instead of as a currency and this lawsuit against Solana attests to that. 

It’s hard to predict what the outcome of this lawsuit will be, but it's fair to say that the Solana lawsuit and the XRP lawsuit are both asking the same question - how do we define cryptocurrencies?

The XRP lawsuit is nearing its conclusion, especially as the SEC is starting to capitulate, so it will be interesting to see how that decision impacts the Solana Lawsuit because cryptocurrencies cannot be a commodity and a security at the same time. 

If XRP’s case and Mark Young’s case are both deemed valid, then it might be necessary for a new department which is not associated with the SEC or the CFTC to be established that can solely focus on blockchain technologies. 

The future of web3 is evolving. It’s imperative that the United States takes a formal, legal decision with both of these lawsuits before wide scale adoption takes place to avoid further growing pains in the metaverse.