Here's why Polkadot's DOT is not a security, according to the Web3 Foundation

Here's why Polkadot's DOT is not a security, according to the Web3 Foundation

Back in 2017, the SEC released Report 21A, better known as the DAO Report. In it, the agency laid out the reasons why the tokens of most DAOs, including Polkadot, should be considered securities.

However, the paper states that development teams could take steps to keep their projects from acting as securities if they so choose. According to the Web3 Foundation (W3F), DOT does not meet the criteria required to be considered a security and is requesting a review of the matter by the SEC.

Software, not securities

The 14-tweet thread published yesterday by W3F states that, according to Chief Legal Officer Daniel Schoenberger, DOT was never intended to function as a security, but as a Layer 1 blockchain, i.e. software that other companies can build on.

"When we thought about launching the Polkadot network, there was no intention to issue a security. We have always viewed DOT as a vertical and use case agnostic coordination software."

Still, DOT's development team acknowledges that the project appears to have been intended primarily for financial gain and reiterates that they have taken steps to correct that view.

1/ @polka dots The native token DOT is and has always been a coordinating software. Following W3F's announcement that DOT is transforming into a non-security, read the thread below to learn how DOT was able to transform, what Polkadot is, and the network's main goals. pic.twitter.com/sAnU56GnIh

— Web3 Foundation (@Web3foundation) January 26, 2023

Measures to prevent unwanted economic attention

Since 2019, when the Polkadot white paper was published, the W3F development team has held repeated meetings with the SEC to assess the project's progress towards the removal of DOT's status as a potential security.

According to W3F, true decentralization needed to be achieved for DOT to be considered software-only, and the organization had taken three key steps.

First, the W3F wants to ensure that all promotion of Polkadot focuses on the technology and not the token itself. Second, the company has placed restrictions on whales and capped the percentage of the total DOT supply to ensure fair voting and governance.

Lastly – and most importantly – W3F reportedly refused to sell DOT to hedge funds and venture capitalists who were interested in the asset as a purely fiduciary investment.

As a result, the team at W3F believes that DOT has “turned into software” and is calling for an SEC review of the token.

If the agency agrees, it would mean DOT would no longer be held to the same strict standards that apply to cryptocurrencies, which are primarily used as a store of value.

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