Ripple Inc. seeks to reduce the pain points of cross-border payments with its real-time gross settlement system, currency exchange and remittance network—which are typically expensive, time-consuming and difficult to track in real time. To do so, the company utilizes blockchain technology and a native digital token called XRP.
This resulted in the US Securities and Exchange Commission (SEC) taking Ripple to court, claiming XRP constituted a security and that the company had not complied with SEC regulations. Recently, Judge Analisa Torres of the Southern District of New York ruled that the XRP token was a security when sold directly to institutions, but not when it is offered directly to the public on cryptocurrency exchanges.
This decision is seen as a partial vindication of cryptocurrency industry claims that their products and services do not constitute securities. It also makes it more difficult for the SEC to bring the industry under its purview and has resulted in the prices of most crypto assets jumping briefly.
However, the ruling has muddied the waters as it implies that the definition of certain cryptocurrency-related products is dependent on the ultimate buyers or users, not the product itself. This means that the cryptocurrency industry still lacks the regulatory certainty it desires.
The court case of SEC v. Ripple Labs Inc., S.D.N.Y., 20-cv-10832, 7/13/23 has intensified the war between cryptocurrency proponents and regulators. It remains to be seen whether it has shifted the battlefield in any meaningful way.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Eswar Prasad is professor of trade policy in the Dyson School at Cornell University and senior fellow at the Brookings Institution. Ari Juels is professor at the Jacobs Technion-Cornell Institute at Cornell Tech. He is a co-director of the Initiative for CryptoCurrencies and Contracts (IC3) and chief scientist at Chainlink Labs.