#Ripple shakes the foundations of American cryptocurrency regulation, presenting a comprehensive legal framework that challenges oversight #SEC and insists on bold, market-oriented clarity regarding digital assets.
Ripple challenges the SEC with a bold legal framework to clarify the status of crypto assets
Ripple submitted an official letter to the U.S. Securities and Exchange Commission (SEC) on May 27 following its meeting with the Commission's Crypto Task Force on May 20, outlining a detailed argument on when a crypto asset, originally sold as part of an investment contract, should no longer be considered a security.
The letter, signed by Ripple's Chief Legal Officer Stuart Alderoty, General Counsel Sameer Dholakia, and Deputy General Counsel Deborah McCrimmon, urged the SEC to adopt a more precise legal framework based on current legislation and court precedents. It referenced the 2023 ruling in SEC v. Ripple Labs Inc., where Judge Analisa Torres concluded that while some institutional sales of XRP were investment contracts, the token itself was not a security when traded on secondary markets. Ripple's letter also referred to legal research highlighting the absence of ongoing legal relationships in most secondary cryptocurrency transactions.
To address the issue of regulatory uncertainty, Ripple proposed a standard for determining when a token has detached from an investment contract. This would depend on whether any substantial promises made by the issuer remain unfulfilled and whether subsequent holders retained enforceable rights from those promises. They also advocated for a well-structured safe harbor to guide market participants acting in good faith. Emphasizing the need for legislative clarity rather than regulatory improvisation, the letter stated:
If there is a gap in the law, it is Congress, not the SEC, that should fill it. In the absence of delegated authority, new legal standards should be established by lawmakers.
Ripple also recommended a 'maturity' test to determine when a digital asset should move beyond securities laws. They described it as a clearer alternative to existing criteria, writing: 'Maturity is a more workable concept than 'decentralization', which has proven elusive and inconsistent in public discourse, litigation, and policy discussions. However, if not carefully constrained, 'maturity' could turn into yet another ambiguous standard.'
The cryptocurrency firm cautioned against imposing additional compliance obligations on tokens that are already operating in well-established, transparent ecosystems. The letter stated:
In short, it would be wrong to impose new obligations under securities legislation — such as registration or disclosure — on tokens and networks that have operated and traded on broad liquid markets openly, transparently, and without permission for a significant time.
'These assets are integrated into the financial system, widely owned, and no longer pose the risks that concern the SEC,' concluded Ripple.
