Solana is facing a class action lawsuit in a California federal court. Solana is accused of allegedly selling an unregistered security–its SOL token. The lawsuit also claims that SOL is centralized and that Solana insiders are ripping off investors.
California resident Mark Young is suing seemingly everyone and everything involved with Solana: Solana co-founder Anatoly Yakovenko, Multicoin Capital co-founder Kyle Samani, Solana Labs, the Solana Foundation, VC Multicoin Capital, and trading desk FalconX.
Whether Solana's leadership is guilty of ripping off its investors or selling an illegal security is up to the courts to determine. What's clear is that Solana's SOL token has not been performing well since the crypto bear market started.
The SOL token has been highly inflationary over the last year:
- Supply on June 30 2021: 273k
- Supply on June 30 2022: 343k
- 1 year inflation: 26%
It seems like Young thinks there's a conspiracy among Solana insiders, and there may be. But investors are also invited to check into a token's fee structure and inflation schedule before buying into a project. Solana is an awesome blockchain to actually use for DeFi and NFTs. It's fast and the gas fees are low enough that you don't need to think about them. But that's not great for the SOL token's price.
Solana doesn't generate much fee income relative to SOL's market cap:
- Market cap: $12.7B
- Annualized revenue: $14.9M
- Price-to-Sales ratio: 897
- Price-to-Earnings ratio: 1.8k
By traditional finance metrics, SOL tokens are very expensive. Growth assets tend to trade at high Price-to-Earnings (P/E) ratios, since their projected growth is priced into their valuation.
Compared to other crypto L1s, Solana's P/E of 1.8k is actually pretty good. According to Token Terminal, Cosmos' (ATOM) P/E is 419k, Algorand's (ALGO) P/E is 21k, and Polkadot's (DOT) P/E is 20k. Crypto fee leader Ethereum's P/E is 104–closer to a Tesla’s than other leading L1 blockchains.
We'll see how this develops. This lawsuit appears to be similar to the SEC's lawsuit against Ripple, but it's unclear if Solana is being dragged into a multi-year legal battle like Ripple's. Mark Young isn't the SEC, but the law firm he’s hired, Roche Freedman, has crypto experience: it's also involved in a lawsuit against Binance.US over how it handled the Terra collapse.