Ripple and the SEC battle
5 min readDec 26, 2020

XRP recently caused an earthquake in the cryptocurrency field. On December 23, the US Securities and Exchange Commission (SEC) announced that it had filed a series of lawsuits against Ripple and its two executives, including CEO Brad Garlinghouse and co-founder Christian Larsen. The main accusation is that they have raised more than $1.3 billion through an unregistered, ongoing digital asset securities offering.

The charge is: Ripple is an unregistered “securities”

The crime defined by the SEC for XRP is “securities.” However, if you don’t consider the nature of XRP being encrypted currency, XRP is usually regarded as a more standard functional token (also called utility token) in terms of the role of tokens alone. Under the US digital currency regulatory framework, this type of token and the “securities token” that need to be registered with the SEC are two completely different attributes.

If XRP is classified as a security, then the vast majority of digital currencies will definitely be classified as securities. So why did XRP become the first bird to be targeted by a “gun”? Obviously, the purpose and value of the XRP project harmed the interests of many American and local companies.

After several years of development, Ripple’s customers have covered at least 350 financial institutions in more than 40 countries. These mature business cooperations are regarded as one of the important value supports of XRP, and they have also become the top five market capitalization of XRP and the main reason why investors are sought after. The Ripple RippleNet cross-border payment solution mainly includes the basic solution xCurrent provided by Ripple for financial institutions for real-time two-way settlement between different bank accounts. Today, Ripple has developed into an open source, distributed payment protocol that supports multiple legal currencies, and transactions can be completed within a few seconds. Customers participating in this payment network will use a virtual currency called XRP to conduct transactions. Transaction fees are almost zero, and there are no inter-bank, remote or cross-border payment fees.

Some analysts pointed out that if banks use XRP as a cross-border transfer currency, they can save about 42% of the cost. Webster Ratings released a report in 2019 stating that Ripple’s XRP aims to break the monopoly of SWIFT (Society for Worldwide Interbank Financial Telecommunication). If it can successfully seize part of SWIFT’s market share, or even completely replace it in some areas, XRP may eventually become the world’s largest cryptocurrency.

Why is the “gun” aimed at Ripple?

Since Ripple has such a bright prospect, why does the United States aim its regulatory guns at this “domestic golden goose”? Yes, the golden goose is a golden goose, but the golden eggs laid by the golden goose are not distributed to the country.

As mentioned in the SEC’s complaint against Ripple, since 2013, Ripple has continued to sell XRP to retail investors around the world to raise funds. Ripple also distributed billions of XRP in exchange for non-cash considerations such as labor and market-making services. In addition to organizing and promoting XRP sales used to fund the company’s business, Larsen and Garlinghouse also achieved unregistered personal sales of XRP, totaling approximately $600 million. In other words, $600 million fell directly into the pockets of the two executives without any reporting to the regulatory authorities (not to mention tax submission).

XRP is committed to the characteristics of global cross-border payment solutions, which must involve huge capital. At the same time, Ripple is aimed at companies that need to use cross-border payments around the world, directly hurting local US banks that use this as an important source of income.

The SEC thinks that it can no longer wait and die. As Ripple’s financial strength grows stronger, the SEC’s ability to monitor will become weaker and weaker. So Ripple was sued by a lawsuit for raising more than 1.3 billion U.S. dollars in unregistered and ongoing digital asset securities issuance.

How does it define securities? The SEC currently recognizes XRP as a security. The judgment is achieved through the “Howey Test”, which contains four major conditions:

1. It is an investment of money

2. The investment is expected to generate profits

3. The investment is for a common enterprise

4. Benefits arise from the efforts of the issuer or a third party

The SEC believes that XRP is a security based on the fourth point. It believes that the benefits obtained by investors originate from Ripple and are a specific third party. However, whether XRP is a security or not is still controversial. For example, Japan believes that XRP is not a security. So far, Ripple’s CEO Brad Garlinghouse is very optimistic and said: The SEC is completely wrong in fact and law, and XRP is a currency, not a security. XRP is the third largest virtual currency and, like Bitcoin and Ethereum recognized by the SEC, it is not an investment contract. In addition, major departments of the US government, including the Department of Justice and the Financial Crime Enforcement Network (FinCEN), have determined that XRP is a currency. Therefore, XRP transactions are not within the scope of the federal securities laws.

The possibility of reconciliation between the two is very high

As mentioned above, Ripple is a “golden goose” raised in the United States, and the United States has no reason to destroy it. We are likely to usher in the result that the SEC is likely to force a settlement. In 2018, former SEC Chairman Mary Jo White contacted Ripple about a civil case, implying that they had to pay. In addition, once XRP is recognized as a security, most of the cryptocurrencies in the market will also be recognized as securities, which will be a bolt from the blue for compliant exchanges registered in the United States.

Secondly, the SEC’s restrictions on non-qualified investors, the old-fashioned Howey test, and the 80-year-old securities law that needs to be reborn are not applicable to the rapid development of the current financial sector. Ripple is likely to become a precedent, prompting the United States to modify relevant rules.

At present, the cryptocurrency fund management company Bitwise has liquidated XRP worth 9.3 million U.S. dollars in its crypto index fund. The three small exchanges OSL, Beaxy and CrossTower have decided to delist and suspend Ripple trading. Chicago quantitative trader Jump Trading and cryptocurrency investment company Galaxy Digital have stopped making markets for Ripple. The crypto index of asset management company Bitwise has even emptied Ripple.

In addition, large exchanges including the United States have not taken any action for the time being, and CEO Omar said that it will not delist XRP. At present, according to the official market data of, the price of XRP has rebounded to 2.20QC (0.3394USDT), with a 24h increase of 22.36%.


-- is the world’s most secure digital trading platform, facilitating the trade and management of digital assets from all corners of the globe.