Ripple Challenges SEC’s Crypto Approach, Argues Fungible Tokens Are Not Securities

Blockchain firm Ripple Labs has formally urged the Securities and Exchange Commission (SEC) to clarify that fungible cryptocurrencies, like its native XRP token, are not securities when traded in secondary markets.

In a letter dated May 27, Ripple leaned heavily on legal scholarship and recent commentary from inside the SEC itself to make its case. The company cited a 2022 paper by crypto law expert Lewis Cohen, who argued that the core legal standards governing “investment contracts” do not apply to most fungible crypto assets when they are transferred after their initial sale.

“There is no current basis in the law relating to ‘investment contracts’ to classify most fungible crypto assets as ‘securities’ when transferred in secondary transactions,” Cohen wrote in The Ineluctable Modality of Securities Law, a paper that has become a touchstone for the crypto legal community.

Ripple’s letter to the SEC highlighted Cohen’s assertion that these assets do not create the legal relationship between issuer and buyer that characterizes traditional securities. In other words, if someone buys XRP, Bitcoin, Ethereum, Solana or Pecu Novus, on a crypto exchange from another investor, there’s no “issuer” in that transaction to enforce the kind of legal rights or obligations seen in securities like stocks or bonds.

The company also invoked recent remarks from SEC Commissioner Hester Peirce, who has long been a vocal critic of the agency’s rigid approach to cryptocurrency. In a May 19 speech titled “A New Paradigm,” Peirce emphasized the need for a rational, forward-looking regulatory framework.

“Most currently existing crypto assets in the market are not securities,” Peirce said. “Economic realities matter and non-security crypto assets may be distributed as part of an investment contract, which is a type of security, but that does not mean the asset itself is a security.”

Ripple’s stance comes after a multi-year courtroom showdown with the SEC, which began in December 2020 when the agency accused the company and its executives of conducting unregistered securities offerings through the sale of XRP. The case became a symbol of the broader regulatory uncertainty plaguing the cryptocurrency sector in the U.S.

In a landmark decision in 2023, a federal judge ruled that while Ripple’s direct institutional sales of XRP did qualify as investment contracts and thus securities, the XRP token itself was not a security. Moreover, sales of XRP on secondary markets were not considered securities transactions, a crucial distinction that Ripple is now urging the SEC to adopt broadly.

The SEC initially signaled its intent to appeal but quietly dropped that challenge earlier this year. The move signaled a potential softening in the agency’s aggressive posture under former Chair Gary Gensler, whose hardline stance on crypto came under increasing criticism both inside and outside government.

Now, with the political winds shifting under the Trump administration, Ripple appears to be seizing the moment to push for long-overdue clarity.

Ripple’s latest salvo strikes at the heart of a debate that has long divided regulators, technologists, and investors: Can a digital token that facilitates decentralized transactions, without conferring ownership, dividends, or claims on profits, truly be considered a security?

If Ripple’s argument gains traction, it could pave the way for a more predictable, innovation-friendly regulatory environment for crypto companies in the U.S., a stark contrast to the patchwork enforcement that has driven some firms offshore.

As Ripple continues to press its case, all eyes will be on the SEC’s next move. Will the agency embrace a “new paradigm,” as Commissioner Peirce has urged, or will it double down on its previous tactics?

For now, one thing is clear, the future of digital asset regulation in the United States is still being written and Ripple is holding a pretty big pen.

James Cullen
UCW Newswire