On the 4th of November, 2022, the Web3 Foundation announced that Polkadot’s DOT has morphed from a security to software.
Web3 Foundation announces @Polkadot's native token DOT has morphed and is software, not a security!
After 3 years of proactive engagement with the @SECGov, W3F announces a landmark step towards the achievement of Web 3.0, a decentralized, trustless, serverless internet.
— Web3 Foundation (@Web3foundation) November 4, 2022
This announcement was made 3 years after the Web3 Foundation collaborated with the SEC. back in 2019, the SEC’s FinHub released a paper which indicates that every initial ICO done with the intention of raising funds to build a digital ecosystem, constituted a security in the hands of the initial buyer.
Yet it left a clause that allowed a digital asset under the US legal framework, to morph from a security to software. All these incidents occurred 6 months before Polkadot was to begin its network launch.
The concept of digital assets morphing into non-securities, or software began with the speech by Director Hinman on the ETH token. He made it clear that under certain circumstances, a crypto token can begin its life cycle as a security and later cease to be one. Thus the SEC was to create a compliance pathway for token issuers, but unfortunately, that pathway is yet to materialize.
Unlike the multiple other experiences with the SEC, like the court decision against KIK interactive, and the cease-and-desist order against Munchee, Web3 Foundation was able to achieve a positive outcome against all odds.
During the planning phase of the Polkadot network, the DOT token was not built to be a security, but understanding that within the sights of the SEC, the initially delivered tokens would be viewed as such. So SEC’s FinHub was contacted to achieve a consensus.
The possibility of DOT becoming a non-security was slim but achievable, and the Web3 Foundation was willing to fully comply with the SEC. This compliance permeated every part from the initial offer of the token to marketing and delivering to initial users. And after periodic open communications to understand the SEC’s concerns, the Web3 Foundation has successfully built effective solutions.
Thus the Web3 Foundation was happy to announce the successful morphing of the DOT token to software, and any subsequent offers and sales, wouldn’t constitute Securities.