XRP: Ripple Urges SEC to Define Security Boundaries

XRP has once again taken center stage in a regulatory discussion as Ripple calls on the U.S. Securities and Exchange Commission (SEC) to provide clear guidance on when a digital asset no longer qualifies as a security. In a detailed letter to the SEC’s Crypto Asset & Cyber Unit, Ripple emphasized the pressing need for regulatory clarity, citing inconsistencies in the way digital tokens are classified and treated under current securities law.

The company addressed this correspondence to supplement Commissioner Hester Peirce’s recent “New Paradigm” speech, where she suggested a fresh framework for evaluating digital assets. Ripple’s central concern lies in determining when an asset, initially offered as part of an investment contract, stops functioning under that classification in the broader secondary market.

Ripple maintains that most fungible crypto assets like XRP should not automatically be considered securities simply because of their past issuance context. When these assets are traded on independent markets without ongoing obligations or promises from the issuer, they lose the characteristics that legally define securities. The company argues that many enforcement actions by regulators fail to account for this dynamic evolution of the asset’s utility and ownership structure.

The firm pointed to the pivotal 2023 ruling by Judge Analisa Torres, which concluded that XRP as a standalone token is not a security. However, the court ruling did recognize that some institutional sales made by Ripple did fall under the securities classification. This dual judgment left a gray area in terms of how regulators should approach similar digital assets moving forward.

Ripple’s latest call to action urges the SEC to abandon reliance on vague standards and to adopt a more structured approach based on established legal principles. The company insists that tokens should only remain tied to the securities framework if specific promises made during the initial investment remain legally binding. Broad or generalized statements, or simple token transfers, should not suffice to classify them as securities.

A key provision Ripple advocates is a “safe harbor” mechanism — a shield to protect those who act in good faith while navigating the complex regulatory terrain of digital asset issuance. The goal is to foster innovation without automatically exposing businesses or individuals to securities violations. Still, Ripple cautions that any safe harbor rule must not imply that all token transactions fall under securities law, as this would defeat its intended purpose.

Additionally, Ripple proposed a practical “maturity” test designed to assess whether a digital asset has evolved beyond its initial investment characteristics. This test would consider factors such as the asset’s current market capitalization, how long its network has been live in a permissionless state, and whether any entity retains unilateral decision-making power over its core functions.

Only when a network reaches a certain level of decentralization, with no central party controlling critical infrastructure, should the affiliated token be treated as an independent digital commodity rather than a security. According to Ripple, this test promotes legal certainty while accommodating the dynamic nature of blockchain-based projects.

In conclusion, Ripple’s renewed outreach to the SEC highlights the growing tension between innovation in blockchain technology and the legacy frameworks used to regulate it. By pressing for rules that account for how digital assets operate in real markets — rather than how they were initially distributed — Ripple aims to pave the path for more predictable and sustainable crypto regulations.

For those closely monitoring XRP and its journey through the regulatory maze, Ripple’s engagement with policymakers signals an ongoing commitment to resolving these complex legal challenges while sustaining momentum in the broader crypto economy.

Related: Expert Advice: Sell XRP If You’re Confused

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