TL;DR
If investors thought there is not much fuel thrown into the fire, then comes the critical question if XRP is a security. The crypto currencies are suffering these days. The effect could be even more severe in case of a decision made by the SEC about whether the second biggest crypto currency is considered a security or not.
Ripple has changed some of its critical statements from the past, according to The Block founder and CEO, Mike Dudas. Dudas did thorough research on the company, citing Ripple’s stance on key arguments related to the company and its cryptocurrency.
According to an archived version of Ripple’s website, the company had stated back in 2013 that they had created the 100 billion XRP that’s in circulation today. Furthermore, the 2013 version of Ripple’s site reports that group of programmers at Ripple Labs “invented” Ripple and released the beta version of the software in 2013, which was made open-source.
“Ripple Labs is the creator of Ripple. We developed the protocol and its distributed payment network, and we now work to support and promote its growth,” the company states in an early version of its whitepaper. “100 billion XRP was created with the Ripple protocol. Ripple Labs plans to gift 55 billion XRP to charitable organizations, users, and strategic partners in the ecosystem over time. The company will retain a portion with the hope of creating a robust and liquid marketplace in order to monetize its only asset sometime in the future.”
On the contrary, on the current version of the company’s website, Ripple states that they didn’t create XRP.
“Ripple, the company, didn’t create XRP; 100 billion XRP was created before the company was formed, and after Ripple was founded, the creators of XRP gifted a substantial amount of XRP to the company,” as currently stated.
The fact that Ripple had changed its key statements about XRP raises a question: is the company doing this to stay safe against the U.S. Securities and Exchanges Commission (SEC)? According to Dudas, if Ripple Labs has created and has been controlling the XRP supply, this raises the question of whether it could be considered as unregistered security by the SEC.
It makes the case worse than Ripple Labs trademarked XRP in 2013 and that the company’s headquarters are in the United States (San Francisco), which is under the SEC’s jurisdiction.
“It is no longer cool for a centralized entity or company such as Ripple to be associated with the issuance of a cryptocurrency such as XRP, as that may cause the SEC_Enforcement team to become interested,” Dudas tweeted.
Later on, chief executives – CMS Cory Johnson and CEO Brad Garlinghouse – have stated in interviews with CNBC that XRP can’t be considered as security:
“We absolutely are not a security. We don’t meet the standards for what a security is based on the history of court law,” Johnson said. “We’re 100 percent clear; it’s not a security. We don’t meet the standards.”
Dudas also conducted a Howey Test on XRP. The Howey Test, by the US Securities Act of 1933 and the US Securities Exchange Act of 1934, whether transactions which qualify as investment contracts are considered securities. In this context, the Howey Test shows whether XRP is a security.
According to Dudas, XRP passes all categories of the Howey Test. That means it could be considered as a security by the SEC. Dudas did not take a stand in this question; he said that everyone should draw his or her conclusions from his investigation.