Ripple Proposes Network Maturity Standard to SEC
By: Isha Das
Ripple, a significant player in the cryptocurrency space, has made headlines with its recent proposal to the United States Securities and Exchange Commission (SEC) to redefine how digital assets are classified, especially when it comes to securities. This development follows Ripple's longtime legal battle and discussions regarding whether certain digital tokens should be treated as securities.
In their comprehensive letter to the SEC's Crypto Assets and Cyber Unit, Ripple challenges the notion that decentralization should serve as the primary criterion for regulatory scrutiny of digital assets. They argue that the concept is ambiguous and often subjective, making it insufficient as a legal benchmark. Instead, Ripple champions the idea of a "network maturity" standard, which offers a more concrete and measurable alternative.
Ripple's proposal outlines specific criteria that should exempt a digital asset from being classified as a security. These criteria include a substantial market capitalization, operation on a public and permissionless network for a significant period, and the absence of unilateral control by any single entity over the network's core functions. Ripple maintains that tokens meeting these measurements do not require the stringent oversight typically associated with securities law.
This stance arises from Ripple's analysis that most fungible cryptocurrencies, once they enter secondary markets, lose the characteristics that define them as securities. In a supporting legal study by US attorney Lewis Cohen, it is suggested that most fungible crypto assets should not fall under 'investment contracts' due to the lack of sustained obligations between issuers and purchasers. Ripple previously won a pivotal court ruling, affirming that their XRP token was not a security in secondary sales, though some primary institutional sales did not escape this classification.
The crypto giant stresses the need for clarity in the regulatory landscape, citing the risk of stifling innovation and misapplying securities laws where they may not be appropriate. By advocating for legislative clarity and urging Congress rather than the SEC to address potential gaps in the law, Ripple highlights its commitment to creating a fair and progress-friendly regulatory environment. The implications of this proposal stand to significantly influence how digital assets are treated, potentially easing regulatory concerns while fostering a more mature market landscape.
