Mark Young Sues Solana for Lying About Token Supply

Anatoly Yakovenko Solana Lawsuit — *Solana founder and CEO Anatoly Yakovenko*

A California man is asking a court to issue a judgment against Solana Labs, the Solana Foundation, and founder and CEO Anatoly Yakovenko for offering an “unregistered security,” alleging that they profited while investors suffered “enormous losses.”

“Defendants 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, [while] investors suffered enormous losses,” according to the lawsuit, filed this month by Mark Young in the U.S. District Court for the North District of California.

Young cited developers’ iron grip on the supply as part of his evidence that SOL constitutes a security. “Because Solana Labs and its insiders directly control significantly more than 50 percent of the total SOL supply, the underlying value of SOL depends primarily on the efforts taken by defendants,” Young claimed, noting that Solana Labs sold fewer than 2 percent of the supply in 2020 as part of an initial coin offering (ICO). “Defendants did this to (1) ensure they had de facto control over the Solana blockchain and (2) to artificially drive down the available supply of SOL securities through coordination amongst themselves.”

As of May 2021, Solana Labs and individual project developers cumulatively held 48 percent of token supply, while the Solana Foundation held another 13 percent.

Yakovenko launched Solana in 2018 with a former colleague from Qualcomm, Greg Fitzgerald. As of July 2022, developers claimed there were 345.5 million SOL in circulation — but omitted their own enormous stash from the official circulation figure, instead counting them as part of a “total” supply of 508 million.

Adding to the nuance, Solana’s founders’ token holdings are part of a complex — and mostly invisible — unlocking process. The process was established to distribute 1.3 million tokens on a monthly basis between January 2021 and January 2023. Solana developers accounted for those tokens in advance as part of the project’s “total” supply, meaning the number would never increase. However, they have suppressed the tokens from appearing as part of the official circulation figure until they choose to sell them.

Solana’s accounting methods are unusual among its peer in the world of top-tier cryptocurrencies. Referencing developers’ caginess about SOL’s supply, the suit noted, “Defendants have used the term ‘circulating supply’ to define ‘the number of [SOL] tokens that are currently ‘unlocked’ and in accounts outside of the control of the Solana Foundation or Solana Labs.”

Young also cited the Solana Foundation’s 2020 claim that it “burned” more than 11 million tokens, or removed them from circulation. A subsequent audit found the foundation only removed 8 million — and dumped the other 3.3 million on the market.

In addition to naming Yakovenko, Solana Labs, and the Solana Foundation as defendants, the suit named FalconX, an over-the-counter broker, as well as crypto-exchange Multicoin Capital and its founder, Kyle Samani. It accused Multicoin and Samani of “relentlessly” promoting SOL “after purchasing them for $0.40 in 2019,” when Multicoin led Solana’s “Series A” offering.

“Samani and Multicoin continuously flogged SOL securities, inflating its market price from below a dollar to hundreds of dollars, persisting in their promotional efforts even after it was clear that Solana had serious outages and technical issues,” the suit added.

The project sold 79.2 million tokens as part of an April 2018 seed sale — or 15 percent of supply — as well as 9.17 million in February 2020 as part of a “strategic sale,” at a unit price of $0.25. It sold 8 million in March 2020 in a Dutch auction on Coinlist at a price of $0.22. It sold an undisclosed number for $314 million in June 2021 to firms that included Andreessen Horowitz, Polychain Capital, 1kx, Alameda Research, Blockchange Ventures, CMS Holdings, Coinfund, CoinShares, Collab Currency, Memetic Capital (MGNR), Multicoin, ParaFi Capital, Sino Global Capital, Jump Trading, and Boys Noize.

Solana’s token price as of Friday stood at $41, down more than 80 percent from its Nov. 6 high of $259. The $41 price made it the world’s 9th largest cryptocurrency by value, with a market capitalization of $14.4 billion.

Young is asking the court for relief including “all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial,” and for a declaration that SOL “is a security and that defendants’ unregistered sales of SOL securities violated applicable laws.”

You can read his suit in full embedded above.