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Howdy!

If you’re reading this, the Mets have begun their Monday doubleheader against the Braves to determine whether they’ll reach the playoffs — and justify a weird monthslong obsession with Grimace.

How cranky this newsletter comes across hangs in the balance. Meanwhile:

SEC’s Mango settlement reiterates its case that SOL is a security

In a Friday news dump, the SEC announced that it had settled its case with Mango Markets, a Solana-based DeFi platform that the SEC claims was trafficking in unregistered securities. 

As part of the deal, Mango DAO and the related Blockworks Foundation (which, as funny as that would be, is not the same as the Blockworks media company sending you this newsletter) will have to pay up “nearly $700,000” in penalties and destroy their MNGO while also removing the native token of Mango Markets from other trading platforms. 

The move was telegraphed after the DAO voted to allow for an SEC settlement a month ago. Five days ago, it also voted to settle with the CFTC, which means Mango DAO will likely be on the hook for even more settlement money soon. None of this is very surprising, as Mango has been in regulator crosshairs ever since Avi Eisenberg made off with $110 million in funds by employing a “highly profitable trading strategy” in 2022.

But in the settlement’s fine print, unveiled Friday, we got a renewed glimpse into the SEC’s case for SOL being a security.

In a section about “Crypto Assets that are Offered and Sold as Securities” near the end of the Mango Markets complaint, the SEC lays out the story of SOL: It was sold by Solana Labs to investors near the beginning of Solana’s existence to fund the development of the blockchain. In the time since, the SEC alleges, Solana Labs and the Solana Foundation have tried to “increase value and demand for SOL.”

Thus, SOL fails the Howey Test, a measuring stick for securities that everyone deep in crypto knows by heart at this point: an investment of money in a common enterprise with an expectation of profits based on the efforts of others.

This Mango case basically rehashes the SEC’s argument regarding SOL in its 2023 complaint against Coinbase, which is still working its way through the courts. Once again, the SEC directly attacked the Solana Foundation’s claim of being a “non-profit foundation […] dedicated to the decentralization, adoption, and security” of Solana.

“In fact,” the SEC writes, Solana Labs transferred 167 million SOL tokens to the foundation with the mandate of “expanding and developing the ecosystem of the Solana protocol.” The Solana Foundation did not return a request for comment.

The SEC’s case also probably needs some retooling however: In both the 2023 complaint and this one, the agency points to the network’s burn mechanism for transaction fees as a way Solana convinces investors that they should expect a profit from their investment. Solana validators recently voted to remove the burn mechanism for priority fees, which make up a large proportion of transaction fees, and Anza is now working to implement the change.

As a reminder, SOL potentially being a security is something of an existential issue for the network. Crypto platforms not named Prometheum aren’t set up to trade securities, and if the SEC succeeds with its current arguments, then it will be hard for US investors to buy or sell SOL. 

This is all subject to change of course, especially following the presidential election. But in the current world, SOL investors will hope their tokens don’t go the way of MNGO.

— Jack Kubinec

Permissionless has the galaxy brain content you read the Lightspeed newsletter for, but IRL. 

Catch the brightest minds in the Solana ecosystem as they discuss the challenges and future of blockbuilding in Solana.

Happy last day of SEC September:

This chart from DL News’ Ben Weiss shows how the SEC has historically ramped up its enforcement activity in the month of September. This data is based on litigation releases put out by the SEC, and based on a rough count, there were 50 such releases in September 2024, showing the trend has continued.

The fondness for September enforcement is caused by the fact that the government’s accounting year ends on Sept. 30, DL News reported, and more enforcement actions can justify a higher budget for the following year.

— Jack Kubinec

Over the weekend, EigenLayer founder Sreeram Kannan and Anatoly Yakovenko, co-founder of Solana, dove into an ongoing debate on X concerning blockchain performance, scalability, and the future of Solana versus Ethereum.

Sreeram took a critical view of Solana, arguing that while Solana’s model is focused on low-latency global synchronization, it will never be as performant as NASDAQ, programmable as the cloud, or as verifiable as Bitcoin. He highlighted that Ethereum’s rollups combined with Eigenlayer offer the best of all worlds—instant confirmations, decentralized cloud-scale programmability, and solid economic security through Ethereum’s settlement layer.

But Anatoly wasn’t having it. He suggested that Solana’s multi-leader model could offer lower inclusion latency than NASDAQ, potentially even outperforming centralized exchanges (CEXs) by using concurrent leaders near the origin of market-moving events. According to Yakovenko, decentralization doesn’t have to mean slower execution. In fact, if a permissionless system can match CEX performance, it’s only a matter of time before it dominates.

Some, like @TrustlessMike, agreed with Anatoly, highlighting that centralized systems often add layers of inefficiencies, and even if NASDAQ is fast, settlement rules and other intermediaries slow down the user experience. Similarly, @0xMert_ from Helius backed Solana, emphasizing that the network doesn’t have to be as performant as NASDAQ to be scalable and permissionless.

Sreeram’s vision found solid support as well. @disk0x praised his rebuttals, noting that Ethereum's modular approach via Eigenlayer tackles key issues like centralized sequencers by leveraging slashing mechanisms. Rollups on Eigenlayer could give Ethereum a decentralized advantage without sacrificing performance. Others, like @Rahul__Ghangas, dug into the technical aspects, asking how EigenLayer’s decentralized architecture compares to traditional L2 systems with single sequencers — highlighting the potential trade-offs for modular designs like Eigenlayer’s.

— Jeffrey Albus

A message from Brian L. Frye, law professor at the University of Kentucky: