Ripple Submits Formal Support for SEC Crypto Framework After $150M Legal Battle

TLDR

• On October 20, Ripple submitted a comprehensive 20-page comment letter endorsing the SEC’s Regulation Crypto Assets proposal.
• The firm argues that investment contracts can qualify as securities without automatically classifying the underlying token as a security.
• Ripple rejects decentralization as an independent legal standard, urging regulators to examine issuer commitments instead.
• The company requests enhanced clarity regarding Form TR submissions, secondary trading markets and uniform treatment under federal securities legislation.
• Ripple disclosed that its prolonged legal dispute with the SEC regarding XRP exceeded $150 million in expenses.

Ripple has formally urged the U.S. Securities and Exchange Commission to implement its newly proposed Regulation Crypto Assets framework. The blockchain payments company contends that establishing transparent regulatory guidelines would enable cryptocurrency companies to sidestep expensive, protracted litigation battles concerning token classification.

On October 20, Ripple submitted a detailed 20-page commentary document. While the submission expresses approval for the SEC’s suggested exemptions covering certain digital asset offerings, it simultaneously advocates for multiple substantive modifications.

Stuart Alderoty, Ripple’s Chief Legal Officer, announced the submission through a statement on X. He emphasized that the company’s previous regulatory confrontation with the SEC generated expenses surpassing $150 million, adding that companies shouldn’t require years of courtroom proceedings to understand their compliance obligations.

Ripple Challenges Decentralization as Legal Framework

The central premise in Ripple’s argument establishes a distinction between the digital asset itself and the investment contract mechanism through which it’s distributed. According to the company, investment contracts may constitute securities without simultaneously converting the token into a security.

This interpretation draws upon the Supreme Court’s Howey test framework, which examines the specific characteristics of investment arrangements.

According to the SEC’s framework, an investment contract might conclude when the issuer completes or permanently discontinues the essential managerial activities originally promised to purchasers. Additionally, the issuer would be prohibited from introducing new commitments of similar nature.

Ripple endorses this methodology. Nevertheless, the company contests elevating decentralization to an independent legal criterion.

The submission argues that decentralization encompasses numerous measurement approaches, including governance structures, node distribution patterns, software development contributions and economic authority. Ripple maintains these metrics fail to provide reliable indicators of whether issuer commitments remain active.

Alternatively, Ripple advocates for regulators to concentrate on explicit issuer commitments to investors and determine whether such promises have been fulfilled or formally retracted.

SEC Framework and Ripple’s Modification Requests

The SEC unveiled Regulation Crypto Assets during August. The proposal introduces two registration exemption pathways for qualifying cryptocurrency investment contracts.

One pathway would permit eligible early-stage companies to secure up to $5 million across a four-year period. The alternative pathway would accommodate offerings reaching $75 million within a 12-month timeframe, accompanied by enhanced disclosure obligations and financial reporting standards.

The draft framework additionally incorporates a safe harbor provision for determining when a token no longer maintains connections to an investment contract. Galaxy Research projects that potentially hundreds of token issuers might ultimately utilize this mechanism.

Ripple seeks enhanced predictability surrounding Form TR, a proposed documentation requirement demonstrating an issuer has concluded its primary managerial responsibilities. The company argues that exchanges and brokerage firms should be permitted to depend on correctly submitted forms.

Ripple further advocates for tokens separated from investment contracts to receive identical treatment across four federal securities statutes. The company has requested improved guidance concerning secondary-market transactions under Rule 500.

Hyperliquid’s policy division has submitted independent recommendations addressing token transactions, airdrop distributions and repurchase programs.

During July 2023, a federal judge determined that XRP itself did not constitute an investment contract, while applying different classifications to various XRP distribution methods. Ripple’s submission notes that both Coinbase and Kraken reinstated XRP trading access for U.S. customers following this judicial decision.

The documentation also reveals that the United States’ proportion of worldwide cryptocurrency developers declined from 38% during 2015 to 19% by 2024. Ripple reports that its domestic recruitment in 2024 doubled compared with 2023 levels.

The public commentary period for Regulation Crypto Assets concluded on October 20. The SEC will proceed to evaluate submitted feedback and may modify the framework before establishing any definitive regulations.