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XRP

New discussion arising: Is XRP a security? Former CFTC Chaiman shares opinion

  • Report from former chairman of the U.S. Commodity Futures Trading Commission (CFTC) may be influenced by his relationship with Ripple.
  • Legal experts dismiss arguments of former CFTC president.

The company behind the digital asset XRP, Ripple, has been involved in a class action lawsuit by former investors. The lawsuit in question seeks to have XRP declared a security within the laws of the United States. That way, the plaintiffs will have proven that Ripple made an illegal sale of the asset that cost them money, and they will be able to receive compensation.

The case receives a lot of attention from the crypto community. A decision against or in favor of Ripple could have repercussions on XRP’s price and the crypto market. In that regard, a report by the former chairman of the U.S. Commodity Futures Trading Commission (CFTC), Christopher Giancarlo, and Conrad Bahlke have caused controversy. In their report released in mid-June, Giancarlo and Bahlke assert that XRP is not a security. The authors of the report point out that, unlike Bitcoin and Ethereum, the digital asset is a liquidity tool and a settlement mechanism.

Since its creation in 2011, the report notes, the XRP token has served as a tool in Ripple’s payment solutions. For example, in its use with the On Demand Liquidity solution that offers cross-border payments without intermediaries and almost instantaneous payment validation. In addition, the report indicates that because XRP does not use mining to issue its supply, no distinction can be made between digital assets and cryptocurrencies such as Bitcoin and Ethereum, which are considered commodities by U.S. regulators.

The authors point out that XRP does not pass the “Howey test” to determine whether an investment asset is a security. The test requires that a person “invest his or her money in a joint venture and be induced to expect a profit only through the efforts of the sponsor, patron or other third party”. The authors of the report claim that this is not the case, therefore they conclude that XRP cannot be classified as a security under the U.S. law.

Does Giancarlo’s relationship with Ripple compromise his findings?

While Giancarlo and Bahlke’s report have arguments that could work in favor of XRP, their conclusions have been criticized in the crypto community. Since leaving the CFTC, Giancarlo has been employed by the law firm of Willkie Farr and Gallagher. The firm currently works for Ripple. The attorney general for the compound platform, Jake Chervinsky, called Giancarlo’s report “noise”. Chervinsky said the only opinion that counts on this point belongs to the Securities and Exchange Commission (SEC). The lawyer said:

(…) we shouldn’t waste time on a vague blog post with no new arguments or citations written by Ripple’s lawyers using facts Ripple provided.

Another critic of Giancarlo’s report is Anderson Kill’s partner, Preston Byrne. In a series of tweets, Byrne noted that Giancarlo is “no longer a regulator. In addition, Byrne points out that the argument that XRP holders have no right to claim Ripple is invalid. Byrne concluded:

(…) the courts have yet to sort out XRP’s status, but it is OK for reasonable people to believe that pre-mined coin schemes like XRP pose significant challenges from several points of view including securities law compliance.

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