A recent research paper published by the European Corporate Governance Institute (ECGI) examines the ongoing debate surrounding cryptocurrency token classification and regulations.
The study, titled, “Corporate Governance Meets Data and Technology,” by Wei Jiang of Emory University and Tao Li of the University of Florida, highlights the legal case between the U.S. Securities and Exchange Commission (SEC) and Ripple as a relevant example.
Read Also: SEC Says Battle On XRP Classification Remains On The Table As Penalty Phase Knocks
The report delves into the evolving landscape of fundraising within the blockchain industry. It details various token-based fundraising methods, including Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), and Security Token Offerings (STOs).
Notably, the paper emphasizes the increased regulatory scrutiny surrounding these practices, particularly regarding the classification of issued tokens as securities.
This focus on token classification stems from concerns that certain tokens might qualify as securities under existing regulations. If deemed securities, these tokens would be subject to stricter issuance and sales regulations.
The ECGI research incorporates the SEC’s lawsuit against Ripple Labs as a case study to illustrate these classification challenges. The SEC’s argument centered on XRP being a security, alleging that Ripple’s XRP sales violated U.S. securities laws.
Affirming XRP’s Status
As WrathofKahneman (@WKahneman) pointed out on X, the researchers mentioned a key ruling delivered by a U.S. federal court on July 13, 2023. The court’s decision clarified that XRP, when sold publicly on an exchange, was not classified as a security. This distinction is crucial, as the court did designate XRP sales directly to institutional investors as securities offerings.
The European Corporate Governance Institute notes #XRP was not found a security by the court in this recent paper, "Corporate Governance Meets Data and Technology."https://t.co/o1iKC6jqRS pic.twitter.com/uJ0bDpKfJE
— WrathofKahneman (@WKahneman) March 14, 2024
This legal recognition holds significant weight within the broader conversation on token offerings and regulatory compliance. The XRP case provides a specific example of how regulatory bodies approach the classification of cryptocurrencies, offering valuable insights for future token issuances.
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Read Also: Ripple Investing in Communities, Ranked 3rd Among Top 100 Bay Area Corporate Philanthropists
Legal Expert Clarifies XRP’s Security Status
Lawyer and XRP advocate Bill Morgan offered further clarification on XRP’s classification. Morgan emphasized that the digital asset cannot be a security. The security status is determined by the method of offering, as XRP can be sold in transactions that are considered investment contracts, making it a security offering.
Despite XRP’s clarified status, the XRP lawsuit has not ended because institutional XRP sales were determined to be securities offerings. Crucial dates for the lawsuit were recently revealed, and the next few weeks and months could be intriguing as the lawsuit plays out.
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