March 5, 2024
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Lets start with a little background on Ripple Labs, it is a technology company that not only develops but deploys blockchain-based solutions for cross-border payments. The company’s flagship product is RippleNet, a global payments network that uses the XRP cryptocurrency to facilitate fast, cheap, and secure payments. The company was founded in 2012 by Chris Larsen and Jed McCaleb.

RippleNet has over 300 financial institutions as members, including banks, payment processors, and remittance companies. The network has processed over $10 billion in payments since its launch. This is significant and in the world of blockchain technology they are not just advocates they are innovators and executors. They have developed true solutions for financial institutions and government agencies. There is a misconception that all blockchain networks must be public in order to have all the components of blockchain and that transparency, that is false. Private blockchains serve the purposes required for financial and government agencies to integrate  into current systems securely.

They have made significant advancements in blockchain technology over the past decade. The company’s XRP Ledger is one of the most scalable and efficient blockchains in existence. The XRP Ledger can process millions of transactions per second, and it can do so with very low fees.

Ripple Labs is also working on a number of other blockchain-based products. The company’s Interledger Protocol is a standard for connecting different blockchains and payment systems could be revolutionary. They are also rumored to be developing a number of other products for the financial industry, including a cryptocurrency exchange and a remittance platform.

Now their XRP coin was launched in 2012 and contrast to popular beliefs it wasn’t an ICO, the XRP coins were distributed through a series of airdrops and giveaways. XRP is not a security, and it is not backed by any government or company. XRP is used to facilitate payments on RippleNet. That is the misconception, the XRP coin gains no benefit from the success of Ripple Labs other than mass adoption.

Before we go into the SEC lawsuit lets give a chronological timeline of Ripple Labs and their XRP coin to shine more light on the subject:

  • 2012: Ripple Labs is founded and begins distributing XRP to the public through a series of airdrops and giveaways as mentioned already.
  • 2013: Ripple Labs launches the Ripple protocol, which allows for the creation of decentralized exchanges and the transfer of XRP between users.
  • 2014: Ripple Labs opens a public beta of its xRapid product, which uses XRP to facilitate cross-border payments.
  • 2015: Ripple Labs launches its first major partnership with MoneyGram, which begins using xRapid to facilitate cross-border payments.
  • 2017: The price of XRP surges to an all-time high of $3.84.
  • 2018: The price of XRP falls sharply, and Ripple Labs faces increased scrutiny from regulators.
  • 2020: The Securities and Exchange Commission (SEC) files a lawsuit against Ripple Labs, alleging that the company sold XRP tokens in an unregistered securities offering.
  • 2023: The SEC lawsuit is still ongoing.

 

The SEC Lawsuit

In December 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs and two of its executives, Chris Larsen and Brad Garlinghouse. The SEC alleges that Ripple Labs sold XRP tokens in an unregistered securities offering.

The SEC claims that XRP is a security because it is an investment contract and this is where the wheels do come off of that train because an investment contract is a contract that gives the investor the expectation of profits from the efforts of others, XRP is not tied to Ripple’s success financially. In addition the SEC argues that Ripple Labs’ executives control XRP and that they profit from the sale of XRP tokens. Now whether that is true or not remains to be seen and even if that were true it still doesn’t position XRP as a security.

Since the suit was filed Ripple Labs has denied the SEC’s allegations, arguing that XRP is not a security because it is not an investment contract, that is does not benefit from the success of the actual company. Ripple Labs also argues that the SEC’s lawsuit is an attempt to stifle innovation in the cryptocurrency industry.

In speaking with Louis Velazquez of FGA Partners he stated the following “Ripple is one of the true innovators in the blockchain space in the United States and that should be embraced not attacked. XRP and Ripple, believe it or not are two different things. Any ruling that is short of stating that XRP is not a security would be a blow to the cryptocurrency industry.” 

 

The Impact of a Positive or Negative Ruling

A positive ruling for Ripple Labs would be a major victory for the company. It would legitimize XRP as a currency, and it would open up the door to a number of new partnerships and opportunities. It would set the stage for continued innovation in the blockchain arena in the USA and keep America in the lead in technology innnovation. A negative ruling would be a major setback for Ripple Labs and other groups as well. It very well could lead to a decline in the price of XRP, and it could make it more difficult for the company to attract new customers and partners. Again this has nothing to do with their technology, it has to do with what the SEC is claiming going back a decade. The SEC has since came after a number of cryptocurrency related companies but this is a blockchain company, it is not a Coinbase or Binance, it’s an innovative blockchain company that should not be bundled into that focus. However a victory for Ripple would be a Victory for centralized exchanges in some ways.

A positive ruling for the SEC would be a major victory for the agency. It would establish the SEC’s authority to regulate cryptocurrencies, and it would send a message to other cryptocurrency companies that they need to comply with securities laws. A negative ruling for the SEC would be a major setback for the agency. It would undermine the SEC’s authority to regulate cryptocurrencies, and it could lead to calls for reform of the agency.

The outcome of the SEC lawsuit will have a significant impact on the cryptocurrency industry as whole. A positive ruling for Ripple Labs would be a major victory for the industry, and it would help to legitimize cryptocurrencies as a new asset class as it should be.

There are bad actors in this space and that is what the SEC should focus on in order to prevent fraud, rug pulls and scams. Ripple Labs and XRP is far reaching but a victory may be on the way, this would be a win for the cryptocurrency industry, blockchain innovation and tech innovation in the USA. The USA need to be leaders in the realm as opposed to simply allowing Europe, Hong Kong, Singapore and other countries to become those leaders. So lets hope the courts see it that way as well.

James Cullen
Technology/Digital Assets Desk

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