Ripple’s Chief Legal Officer, Stuart Alderoty, has urged the SEC to provide clear guidelines on the treatment of crypto tokens. In a letter to the SEC’s Crypto Task Force, Alderoty argued that most crypto tokens traded on secondary markets should not be classified as securities. This request is seen as Ripple’s attempt to pave the way for the launch of XRP ETFs this year. Without regulatory clarity, the launch may face further delays, giving other assets an advantage over XRP. The current market is poised to embrace XRP, and the introduction of ETFs could significantly enhance its reach, similar to what was witnessed with Bitcoin.
XRP Ruling Supports the Argument
Stressing on Judge Torres’s ruling in the SEC v. Ripple case, which deemed XRP sales on exchanges as non-securities, Alderoty also referenced a legal analysis by Lewis Cohen. According to Cohen, a token should only be considered a security if a clear buyer-seller relationship exists, which is not typically the case in token exchanges.
Call for Legislative Guidance
Alderoty emphasized that the SEC should not unilaterally establish new regulations. He advocated for Congress to enact laws governing the crypto market, suggesting that guidance based on existing legislation would alleviate confusion. While acknowledging regulatory gaps in the crypto space, Alderoty firmly stated that the SEC should not act beyond its mandate. He urged Congress to develop a legal framework specific to digital assets, emphasizing that regulatory clarity must originate from lawmakers, not regulators exceeding their jurisdiction.
Proposed Criteria for Security Classification
Meanwhile, Ripple proposed a ‘network maturity’ test to determine the security status of a crypto token. This test evaluates factors such as project scale, duration of operation, and decentralization of control. Ripple asserted that a token should be deemed a security only if two conditions coincide: unmet issuer commitments and legal entitlement of current holders to these commitments. Otherwise, the token should be distinguished from the initial investment agreement. This initiative aligns with Ripple’s strategy to facilitate a clear legal pathway for potential ETF approval in the future.
Advocating for Equitable Crypto Regulations
Ripple’s request mirrors similar appeals from industry entities like the Blockchain Association, urging the SEC to refrain from applying conventional financial regulations to the crypto sphere. With influential players like BlackRock engaging with the SEC’s Crypto Task Force, the momentum for improved regulations in the crypto sector continues to grow.