LAGOS (CoinChapter.com) — Ripple Labs received a lawsuit from the Security and Exchange Commission (SEC) on allegations that its senior executives, Brad Garlinghouse and Christian Larsen, sold its blockchain’s native token XRP as unregistered securities.
Let’s examine the SEC claims and confirm if Ripple, the company created in 2020 to decentralize the banking system, is a security or not.
What are securities?
Securities are fungible and tradable financial instruments used to raise capital in the public and private markets. Securities are primarily divided into three parts which are debt (loans that are repaid with periodic payments), equity (which provides ownership rights to holders), and hybrids (which involves elements of both debt and security).
Does XRP operate like security?
In 2020, XRP became the first regulated cryptocurrency in the United States. XRP was declared a virtual currency, forcing XRP to comply with the banking laws of the U.S. and other countries, including the U.K., Singapore, and Japan.
Five years after it became regulated crypto, the SEC declared XRP as security and all XRP sales illegal.
Looking at the definition of securities, it seems like SEC is wrong here because XRP does not fit the definition of Securities.
XRP cannot be classified as equity because the XRP token does not give ownership rights to buyers. XRP works like a currency to which users can use XRP tokens for daily activities.
The treasury department issues currencies periodically, so also currencies are issued through the decentralized process in cryptos which involves the maintenance of the network that users secure through their computational power in PoW.
The SEC has sued Ripple because the company uses part of the XRP tokens in all aspects of the business. However, this does not classify as security because Ripple funding aspects of their business do not give direct ownership rights to XRP holders.
The holder of XRP is almost the same as the owner of a U.S. dollar because XRP does not classify as an investment contract.
XRP users might lose money due to holding the token because of demand and supply factors. Still, we can’t say it’s security because losing or gaining money on XRP purchases is not directly tied to the Ripple Labs activities.
SEC is trying to force Ripple Labs to register as security might hurt the company’s goals. As a result, XRP users who were able to perform quick and seamless settlement of low-cost transactions with no entry barrier will be subject to new laws.
Thousands of exchanges will have to be subject to lengthy and complex requirements for registering securities. XRP holders are asking the SEC to dismiss the case because the actions of the SEC have affected them.
