Bankless

How Ripple's Win Reshapes Crypto with Paul Grewal & Mike Selig

Fri Jul 14 2023

XRPcrypto industryregulationlegislationSEC

Description

A US court has ruled that XRP is not a security, raising questions about the classification of other tokens. The court's ruling separated XRP from the investment contract, and transactions involving XRP on exchanges and payments made with XRP were deemed not to be securities. Legal experts discuss the implications of the ruling, highlighting its positive development for the crypto industry. The Ripple vs. SEC case has significant implications for determining whether tokens are considered securities or not. The court decision exposes the regulatory gap in the US and emphasizes the need for legislation to provide market structure regulation for cryptocurrencies. There is a bipartisan consensus emerging on the need for rules, even if there are disagreements about what those rules should be. The SEC's approach to these cases raises concerns about their motivation and credibility.

Insights

XRP Ruled Not a Security

A US court has ruled that XRP is not a security, setting a precedent for other tokens.

Implications for Crypto Industry

The court ruling is seen as a positive development for the crypto industry.

Regulatory Gap in the US

The court decision exposes the regulatory gap in the US and highlights the need for legislation.

Bipartisan Consensus on Rules

There is a bipartisan consensus emerging on the need for rules, despite disagreements on specifics.

SEC's Approach Challenged

The SEC's approach to these cases raises questions about their motivation and credibility.

Doubt on All Crypto Assets as Securities

The ruling brings doubt to the idea that all crypto assets are securities by default.

Summary

Transcript

Court Ruling on XRP

00:03 - 07:17

A US court has ruled that XRP is not a security
The ruling raises questions about the classification of other tokens as securities
The court's ruling separated the crypto asset from the investment contract
XRP on exchanges and payments made with XRP were deemed not to be securities
Selling XRP directly pursuant to contracts was considered an investment contract and thus a security
Judge Torres clarified that XRP itself was never a security throughout the process
The distinction between institutional transactions and exchange trading was crucial in the ruling
Judge Torres rejected the SEC's claim that XRP is a security
The burden of proof was on the SEC to prove that XRP is a security, which they failed to do

Implications of the Ruling

06:52 - 14:22

Legal experts Paul Graywell and Mike Selig provide insight into the implications of the ruling
The ruling is seen as a positive development for the crypto industry
The court ruling was seen as a check and balance against regulatory overreach
The SEC has been interpreting the Howey test broadly in crypto cases
The court rejected the SEC's claim that XRP is a security
XRP is now considered similar to other commodities and goods
The SEC will have a high burden of proof to show that assets are subject to securities laws
This decision has significant implications for crypto in various ways

Ripple vs. SEC Case

14:04 - 21:33

Judge Torres issued a ruling on a motion for summary judgment in the Ripple vs. SEC case
The judge ruled that institutional transactions were securities transactions, favoring the SEC
The judge's rulings in favor of the Ripple defendants on other questions were also final decisions
A third category of topics, including aiding and abetting liability, will be set for trial due to disagreement on basic facts
Before an appeal can be made, there needs to be a final judgment after resolving all outstanding issues
The trial proceedings could take months or even years to wrap up before going to the second circuit court of appeals
Judge Torres' decision has persuasive authority and may influence other cases involving tokens and securities
This precedent could have a massive impact on determining whether tokens are considered securities or not

Token Classification and Securities Laws

28:04 - 35:08

Judge Forrest's analysis of tokens in the XRP case applies to other tokens like Solana, Filecoin, Matic, Adam, and Cardano
However, transactions involving these tokens could still be deemed securities if they involve investment contracts
New and existing projects should be cautious about potential securities law violations even if they are not dealing with assets like XRP
In scenarios where specific commitments or representations are made between buyers and sellers on exchanges, there may be a different outcome regarding securities classification
Gary plastic case is referenced as an example where an asset like a credit CD is not considered a security
If Ripple or another entity had their own exchange showing their token, it might be considered a security under certain circumstances
Judicial decisions in cases like Telegram and library deal with sales by the issuer or underwriters, not blind sales on secondary exchanges
Existing token teams and exchanges may feel more confident based on recent court decisions
Lawyers can now point to this judge's agreement that tokens can be distinguished from investment contracts
Purchasing NFTs for consumption reasons without relying on an issuer's promises may not constitute an investment contract
Case law supports the idea that purchasing commodities like silver or whiskey does not rely on managerial efforts from issuers
The court distinguishes between buying commodities and relying on a promoter for profits
Token holders must be protected in this environment

Legislation and Regulatory Gap

41:07 - 48:34

The court decision exposes the regulatory gap in the US and highlights the need for legislation to provide market structure regulation for cryptocurrencies
Congress needs to pass legislation that covers the regulatory gap and creates a structure for exchanges to get registered
There is a bipartisan consensus emerging on the need for rules, even if there are disagreements about what those rules should be
The SEC's approach has been inconsistent, and legislation has a real chance of providing clarity and protection for investors
The SEC's approach to these cases raises questions about their motivation and the public interest they are supposed to protect
The SEC's celebration of a decision that was a major loss to their credibility is concerning
There are concerns about the United States' credibility on these issues, especially compared to conversations happening in other countries
Neutrality needs to be restored in the SEC, which should focus on disclosure rather than becoming merit-based

Conclusion

55:19 - 59:53

This ruling is significant as it establishes that crypto assets themselves are not securities
The SEC's narrative that everything in the crypto space is a security is being challenged by judges and lawyers
The SEC did not win the argument that crypto assets are securities, despite their repeated claims
There are strong voices pushing back against the SEC's overreach in this case
The ruling brings doubt to the idea that all crypto assets are securities by default