Ripple Labs has intensified its regulatory advocacy with a formal letter to the U.S. Securities and Exchange Commission’s Crypto Task Force, arguing that fungible crypto assets traded in secondary markets should not be classified as securities. The blockchain company’s legal team cites court rulings and legal scholarship to support its position that most digital assets lose security status once separated from initial investment contracts.
In documents submitted May 28 and reviewed by CoinPush News, Ripple’s Chief Legal Officer Stuart Alderoty emphasized that current securities laws create unnecessary confusion for market participants. The letter responds directly to SEC Commissioner Hester Peirce’s recent call for clearer guidelines about when digital assets transition from investment contracts to non-security commodities.
The legal push comes as regulators worldwide grapple with classifying cryptocurrencies like XRP, which face conflicting designations across jurisdictions. Ripple’s submission marks its latest strategic move in a multi-year battle with the SEC that began with 2020 securities violation allegations.
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Ripple’s Legal Framework for Digital Assets
Ripple proposes a two-part test to determine when tokens should shed security classification:
- The issuer must have no remaining material promises to token holders
- Current holders possess no enforceable rights against the original issuer
This framework builds on Judge Analisa Torres’ landmark 2023 ruling in SEC v. Ripple Labs, which found that XRP itself is not inherently a security despite some institutional sales meeting investment contract criteria. The company argues this distinction should apply broadly to fungible assets with active secondary markets.
SEC vs Ripple: Legal Precedents
Ripple’s letter references three key legal resources:
- The 2022 paper “The Ineluctable Modality of Securities Law” by Lewis Cohen
- Judge Torres’ 2023 summary judgment ruling
- The SEC’s own enforcement action against Ripple
Legal analysts note this tripartite approach strategically uses the SEC’s arguments against them. By citing the regulator’s partial victory in the Ripple case, the company positions its framework as an extension of existing jurisprudence rather than novel legislation.
Regulatory Clarity Demands
Alderoty’s submission stresses that Congress – not the SEC – should address regulatory gaps through new legislation. The letter states: “Absent delegated authority, new legal standards must be established by lawmakers” while urging the SEC to provide interim guidance aligned with current laws.
This position aligns with growing industry calls for legislative action, as detailed in the SEC’s Crypto Task Force public filings. Market participants argue that enforcement-focused regulation stifles innovation and creates compliance uncertainty.
Ripple’s proposal includes a safe harbor provision that would protect projects developing decentralized networks from securities laws, provided they meet specific decentralization milestones. This concept mirrors Commissioner Peirce’s earlier “Token Safe Harbor” proposal from 2020.
The company’s legal team emphasizes that secondary market transactions lack the contractual obligations required for security classification under the Howey Test. They argue most crypto assets become mere commodities once separated from their initial sale agreements.
Legal experts remain divided on the proposal’s viability. Some praise it as a pragmatic solution to regulatory overreach, while others warn it could create loopholes for fraudulent projects. The SEC has not yet issued an official response to Ripple’s submission.
Market analysts suggest a favorable resolution could boost XRP’s adoption in cross-border payments and liquidity solutions. However, the cryptocurrency’s price remains sensitive to regulatory developments, with many institutional investors awaiting clearer guidelines before increasing exposure.
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Market Impact: Regulatory clarity could accelerate institutional adoption of XRP and similar assets by resolving custody and compliance concerns. Exchanges may relist previously delisted tokens if the SEC adopts Ripple’s framework, potentially increasing market liquidity.
- Investment Contract
- A financial arrangement where investors provide capital expecting profits from others’ efforts. Under U.S. law, these qualify as securities subject to SEC regulation.
- Fungible Assets
- Interchangeable goods or currencies where individual units are identical and mutually substitutable. Most cryptocurrencies qualify as fungible assets.
- Secondary Markets
- Platforms where investors trade previously issued financial instruments. Crypto exchanges facilitate secondary market transactions for digital assets.
