Most people within the crypto community are aware that one of the failings, if it could be described as a failing of Ripple, is that it is controlled by an entity, Ripple Labs. This is despite the fact that it is a cryptocurrency that is built with the blockchain technology.
Ripple is one cryptocurrency that has been at the receiving end of criticism by many in the crypto community. Critics regard the platform as a company that has no business with the decentralized ecosystem. In today’s ripple currency news, we are going to look at the future of the coin in view of SEC’s regulatory approach to securities.
How Will Ripple Avoid The Security Classification?
It is a known fact that SEC has been hounding entities that have not proven that their tokens have utility using a set of rules derived from the Howey Test. One of such rules is the expectation of profit on the part of the investors while buying the token and if the entity is run by a central body.
A SEC official announced in 2018, that networks such as Ethereum cannot be classified as securities but insinuated that the same cannot be said of Ripple raising speculations that the company behind the cryptocurrency may be on watch list of entities that may be axed.
The official who is SEC Corporation Finance Director William Hinman said in June:
“Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions.”
Although Hinman was not speaking in an official capacity, his view reflects that expressed by many SEC officials such as Valerie Szczepanik.
SEC has come a long way with Ripple since then with a lawsuit that has dragged on for months with no end in sight yet by October 2021. This is despite insinuations that the parties would reach a compromise, which has not happened.
Utility With Decentralization for Compliance
The Ripple question and the SEC rhetoric has shown that not all networks will get axed by the agency especially if their tokens have utility and the platforms work on decentralization. What most of these cryptocurrencies should be working aside decentralization is creating utility going with the Hinman speech.
Ripple has obviously made progress in creating a utility token considering the acceptance XRP has as a trans-border remittance instrument. What seems to be lacking is the decentralization feature that will make the company avoid SEC’s hammer.
Most ICOs Stand No Chance of Classification As Securities
At the center of SEC’s classification is the Howey test. Judging from some of the agency’s regulatory moves in recent times against entities that sold initial coin offerings, it is obvious that most ICOs do not really stand a chance against the agency’s clamp-down because they are not decentralized enough and do not boast utility.
Through it all, it is clear that Ripple is one of the very few entities that stand a chance of making serious progress towards making their token gain real utility as well as decentralizing its platform.
This has been referred to as the Hinman’s Paradox by James Park in a report for Lowell Milken Institute in which he stated that:
“For a utility token to be distributed freely without regulation by the securities laws, it must be functional. But many utility tokens are only functional if they are distributed widely enough so that a de-centralized system arises.”
Ripple’s Positive Steps
Past events and improvements on the Ripple platform has shown that the Ripple XRP has great potentials as an international remittance service. This became even more apparent with the launch of the Ripple XRapid. What the platform needs at this point is to decentralize to ensure that it is favored by the Howey test.
According to the company, “Ripple connects banks and payment providers via RippleNet to provide one frictionless experience for sending and receiving money globally.”
— Ripple (@Ripple) October 12, 2021
ICOs have generally misused the utility term in their quest to make quick money. It remains a fact that most of the ICOs laying claims to selling utility tokens have no platform on ground and the situation is akin to building castles in the air.
Ripple on the other hand has proven that its token has utility. What the company needs at this moment is compliance by decentralization. This has been the issue of contention between Ripple and other cryptocurrencies.
Ripple Needs More Decentralization Projects
The allegation that the network is a centralized entity run by the Ripple Labs effectively has potentials of putting it on a collision course with SEC unless it takes prompt action to decentralize.
Many people have varied definition of the term, however it is clear that what the agency focuses on in defining decentralization is the management platform management.
SEC for instance mentioned that Bitcoin is managed by many competing and somewhat complementing companies. This cannot be said about Ripple which is known to be principally managed by Ripple Labs.
Things Are Changing for Ripple
This though seems to be changing with the recent announcement that Omni and Coil, two affiliated and yet independent entities are planning to offer remittance services using the Ripple platform.
It may not be a sufficient decentralization move but it still is a small step in the right direction in Ripple’s quest to comply with securities laws.
Ripple has a few factors in its favor. SEC seems focused on more recent ICOs. These are those entities that sold tokens after the 2017 DAO Report. This makes sense because some of the most flagrant abusers of securities laws are entities that launched ICOs in the wake of spiking Bitcoin price last year.
Obviously older ICOs such as Ripple and Ethereum were hosted by teams that entered the crypto ecosystem with a clear vision of utility even though the former seemed not to have taken cognizance of securities law in terms of compliance from the onset.
SEC May Be Hampered But For How Long?
Another factor in Ripple’s favor is that SEC seems to be more interested in recent ICOs mainly due to the agency’s limited resources.
The novel nature of the crypto industry is such that the commission would want to gain experience with the justice system on the most effective approach to tackling non-compliance using newer and smaller entities before going after the big ones like Ripple.
Though this might be cold comfort, it gives Ripple the room to work on creating a platform that can be truly classified as decentralized.
Ripple has not relented as it has continued expansion of its network though collaboration with CBDCs and listings in exchanges.
Soaring Demand for Ripple XRP
The coin market has shown a lot of confidence towards XRP despite the ordeals of the company behind it. This is evident from the surge in its capitalization which presently is $51 billion. Current market data shows that Ripple has been surpassed by a number of crypto tokens and now ranked 6th.
Its market cap has surged to $51 billion $14.7 in 2018 when it was the third moat capitalized coin. Ethereum which was overtaken briefly by XRP during the bear market of 2018 has bounced ahead with others such as Binance Coin and ADA in tow.