Ripple is the leading provider of crypto-enabled solutions for businesses, which promises secure, instant, and nearly free global financial transactions of any size with no chargebacks. Founded in 2012, Ripple supports tokens representing all types of assets, including fiat, crypto, commodities, or even “community credits,” issued by users who know each other. The network operates on its native blockchain XRP Ledger powered by an XRP token.
In December 2020, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, alleging that the payment giant illegally raised over $1.3b through an “unregistered, ongoing digital asset securities offering.” SEC insists that the XRP token is not a currency but security since it was used to finance Ripple’s platform. The financial regulator also filed the complaint against the Ripple co-founder Christian Larsen and current CEO Bradley Garlinghouse, citing that they conducted unregistered personal sales of XRP totaling approximately $600m.
The SEC had a similar case with Telegram, viewing the ICO of Gram token as an unregistered security offering. After the lengthy legal battle, Telegram eventually gave up on its TON project. However, this time SEC lawsuit led to the delisting of XRP across the most important crypto exchanges, including Coinbase, Crypto.com, Binance, and OKCoin. XRP price suffered a massive drop, which prompted over 63,000 XRP holders to unite and file a class-action lawsuit against the SEC.
Meanwhile, Ripple mobilized its community and launched a counter-offensive on SEC. The company claimed that the regulator didn’t provide them with fair notice that distributions of XRP would ever be prohibited. SEC attempted to prevent Ripple from pursuing its fair notice defense, but the court rejected the motion. “It’s even more imperative that the sun sets on the SEC’s “regulation by enforcement” approach,” Ripple’s chief legal officer Stuart Alderoty commented on Twitter, welcoming the court ruling.
Ripple maintains that the SEC reasoning has no grounds. In the blog post, Garlinghouse elaborated that XRP holders do not share in the profits of Ripple or receive dividends, nor do they have voting rights or other corporate rights, therefore, XRP can’t be deemed security. In order to invest in Ripple, one should buy its shares, not the token. The CEO also accused the SEC of “picking winners in this industry,” claiming that the regulator dramatically benefits BTC and ETH and creates an unfair advantage for other US companies.
The final verdict is yet to be released. The legal battle is likely to continue in 2023 since both parties agreed to postpone court proceedings until the end of 2022. The closing brief must be submitted a few days before Christmas. The decision will be crucial for the crypto industry as it will determine the regulatory framework for cryptocurrencies in the US. If SEC wins, it will mean a tightened regulatory grip on the crypto industry and a potential exodus of crypto companies out of the US jurisdiction. If the ruling goes in favor of Ripple, that will indicate the ease of regulations and a step towards more innovation in the field. “We are on the right side of the law and of history,” Bradley Garlinghouse wrote.
Interestingly, the market seems to believe in Ripple’s success. According to the CoinMarketCap survey, users believe that on May 31, 2022, the XRP price will be 26% up, trading at $0.81. Based on the previous surveys, the crypto community projected XRP prices with 77.57% accuracy.