Ripple has sent a follow-up letter to the Crypto Task Force of the U.S. Securities and Exchange Commission (SEC), requesting that the regulator give more detailed instructions on when a digital asset should no longer be included in an investment contract.
This action demonstrates Ripple’s continued efforts to seek regulatory clarification in the cryptocurrency market, particularly in the wake of its legal dispute with the SEC regarding XRP’s classification.
Ripple Calls for Clear Distinction Between Token Offerings and Secondary Market Sales
Ripple stressed in the letter the necessity of a structure that makes a distinction between a digital asset’s original offering and its position in secondary markets.
The company contends that, like commodities or currencies, many digital assets, including XRP, may be initially offered as part of investment contracts but may eventually have the ability to operate on their own.
Since businesses are still unsure of how the current securities laws will affect their projects, Ripple argues that the absence of clear regulations will continue to impede innovation in the blockchain sector in the US.
In order to guarantee that enforcement actions are founded on clear, uniform criteria rather than vague interpretations, the company urged the SEC to develop regulations that take into consideration the special characteristics of digital assets.
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Ripple Cites Legal Paper Arguing Most Crypto Assets Aren’t Securities in Secondary Markets
In its recent letter to the SEC, Ripple referenced the 2022 legal paper The Ineluctable Modality of Securities Law, which argues that most fungible crypto assets traded on secondary markets should not be considered securities.
The paper highlights that these assets typically lack ongoing obligations between buyers and the original issuers—an essential feature of investment contracts under U.S. securities law. Ripple used this analysis to support its case for clearer regulatory guidance.
The company also cited the 2023 court ruling in SEC vs. Ripple Labs, where the judge determined that XRP is not inherently a security. The court ruled that while some of Ripple’s early institutional sales of XRP qualified as investment contracts, the token itself, especially in secondary market transactions, did not meet the criteria of a security.
Ripple argues that these points together show the need for the SEC to define when a digital asset transitions out of securities status.
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Ripple Proposes Legal Test to Clarify When Tokens Exit Investment Contract Status
Ripple suggested a legal test in its letter to the SEC to define the circumstances under which a digital asset is released from an investment contract.
According to the test, unless two certain circumstances are met—the issuer has made significant claims that have not yet been fulfilled, and the current holder has enforceable legal rights against the issuer—a token should be regarded as distinct from the investment contract.
According to Ripple, this strategy would provide much-needed clarification and stop regulators from labeling digital assets as securities based only on their original sale method.
The business emphasized that a safe harbor structure should operate within the confines of current securities regulations, safeguarding legitimate participants while denying cover to those who act dishonestly.