Ripple Guides SEC on Crypto Regulation

Ripple Labs has formally responded to the U.S. Securities and Exchange Commission (SEC), offering guidance on digital asset classification following Commissioner Hester Peirce's February 21st request for public input. The company's response advocates for a regulatory approach grounded in existing laws, urging the SEC to avoid overly complex interpretations and promote clarity.

Ripple's Recommendations for Clear Crypto Rules

Ripple's submission, available here, emphasizes the need for consistent application of U.S. securities laws to digital assets. The company argues the SEC's authority is limited to securities as defined by the Securities Act of 1933 and the Exchange Act of 1934, and that expanding this authority without Congressional action would be unlawful.

Ripple challenges the previous administration's application of the Howey Test, stating that speculative trading and discussions of token value shouldn't automatically define investment contracts. The company urges the SEC to avoid misapplying legal tests to assets that aren't securities.

This action follows the SEC's recent dismissal of its lawsuit against Ripple, a significant event that has positively impacted XRP's price and investor sentiment.

Law-Based Definitions for Crypto Assets

Ripple advocates for using established legal terms like "investment contract" when classifying digital assets, stressing the need for a clear, enforceable agreement between parties, including an expectation of profit generated by a counterparty's actions. The company cautions against broadly defining securities to encompass assets without a contractual promise, arguing that a simple token sale shouldn't automatically equate to a capital raise or investment contract.

Ripple warns that using vague concepts like "decentralization" or "common interest" risks regulatory distortion. It encourages the SEC to develop crypto regulations that are predictable and avoid overreach.

Staking and Securities Laws

Ripple also addressed staking mechanisms in decentralized networks, arguing that these don't constitute securities offerings. The company highlights that staking rewards are often algorithmically generated, not by a third party's managerial efforts. It requests confirmation from the SEC that these yield-generating activities don't necessitate securities registration, emphasizing the lack of an identifiable issuer or counterparty making investment promises.

Ripple concludes that clear, limited, and legally sound guidance will benefit market participants.

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