The world of cryptocurrencies and the blockchain depends on decentralization and utility. Although many projects would not meet those criteria, there are notable exceptions. For example, the Web3 Foundation argues that the Polkadot DOT is no longer a security, but software, due to its constant evolution.

Why DOT might have been a value initially

The interpretation of the SEC’s securities guidelines leaves little room for interpretation. Any digital asset linked to fundraising must be registered with the regulatory body. Failure to do so results in unregistered values, a criminal offence. The person or group responsible for issuing that asset may face legal repercussions, as can any service provider that facilitates its trading. It’s a fate that many cryptocurrencies that gained popularity through ICOs and other token sales desperately want to avoid. However, it is easier said than done.

Polkadot’s asset, DOT, could easily fall into the “stock” category. It was used to raise funds for the development of the Polkadot ecosystem many years ago. However, the Web3 Foundation argues that everything is in the past. Thanks to the continuous evolution of the Polkadot ecosystem, your native token now has real utility. Also, it is part of a larger decentralized ecosystem, which makes DOT more like “software”.

Through three years of formal and informal meetings with the SEC, the Web3 Foundation further established that position. The open dialogue with lawmakers planted the seeds of how a cryptocurrency like DOT can go from being a security to something else. And that option has always been around since the SEC introduced FinHub, its strategic hub for financial technology and innovation.

FinHub issued a document in 2019 to discuss digital assets and their potential “security” implications. While the research states that the majority of assets used for fundraising are securities, there is a path to compliance. That path allows a digital asset to throw off the shackles of the security label and be reassessed in the future. The Web3 Foundation uses that wording to its advantage to claim that DOT is software, even if it’s just a self-certification.

DOT has real utility

A lot has changed for Polkadot since the fundraising days. It is now a vibrant network for decentralization and Web3 development. Furthermore, the DOT token plays a crucial role in the ecosystem. It is no longer an asset issued to raise funds, but ensures the growth and maintenance of the parachain ecosystem, network governance, and staking. Those who have DOT have the final say in the Polkadot protocol.

Getting clarity and an official SEC decision is the next big hurdle. While the Web3 Foundation believes that DOT is no longer a security, the SEC may have a different option. To date, the Web3 Foundation has yet to receive a no action letter from the regulator to indicate that there will be no future enforcement action. The foundation’s responsible approach is commendable on this front.

As the discussions between the Polkadot team and FinHub covered all aspects of the protocol’s operations, there should be little room for interpretation. Polkadot’s technology is fully developed, as described in the whitepaper, and most control has been relinquished by the Web3 Foundation. It still owns about 15% of DOT tokens, with Parity Holdings, the for-profit company that built the platform, holding a smaller stake. As such, there is no “control” to speak of.

For now, there is still a lot to clear up, mainly from the Securities and Exchange Commission.