In the United States, the Southern District Court of New York has arrived at the following conclusion in its ruling: Ripple’s XRP token is not classified as a security. Ripple emerged victorious, while the SEC suffered a defeat. The presiding judge in this case was Analisa Torres.
In greater detail, the court specifies in its ruling that the sale of Ripple’s XRP tokens via exchanges and algorithms did not constitute an investment contract, excluding the interpretation of tokens as securities. However, the institutional sale of the tokens was deemed to be in violation of federal securities laws.
The US Securities and Exchange Commission SEC, the losing party in the case, tried to claim in its lawsuit that XRP was an unregistered security (investment contract), in which case the sale of the XRP token to consumer customers would have been illegal in the USA.
If XRP had been interpreted as an unregistered security, offering XRP to consumer customers would have been illegal. Luckily for Ripple, this did not happen. XRP‘s price reacted to the news with a sharp rise.
This legal case represents a significant triumph for Ripple Labs, XRP investors, and DeFi tokens. Moreover, it will provide much-needed clarity to the long-standing debate surrounding the classification of cryptocurrencies and tokens as securities, determining whether all or only some fall under the securities category while others belong to alternative asset classes.
This matter is of great importance, especially for issuers and brokers of cryptocurrencies and tokens, as the regulation of securities is significantly stricter than the regulation of cryptocurrencies and tokens. Stricter regulation usually also means that trading costs in more strictly regulated investments are higher than in a less regulated market.
The case processing has also taken a long time; the SEC sued Ripple in 2020, so this decision will clarify the legal definition of other tokens.
The US courts have likely wanted to define one decision on the subject area as a preliminary decision, which other courts will follow. This decision will hopefully calm the cryptocurrency market, as it should now be clear that tokens like XRP, when sold through exchanges and algorithms, are not securities.
XRP has generated significant debate within the cryptocurrency community regarding its classification as a cryptocurrency. This outcome may also pave the way for a potential increase in the issuance of tokens, resembling cryptocurrencies like XRP, which rely on a less decentralized blockchain.
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