One of the longest-running legal issues affecting the regulatory future of crypto is potentially headed for resolution.
The case, between cryptocurrency company Ripple Labs and the US Securities and Exchange Commission (SEC), centers on whether Ripple’s XRP token is a security and has gone through several iterations since its inception in 2020.
On Wednesday (August 7), the scales of justice tipped partially in Ripple’s favor with the company ordered by a federal judge to pay a $125 million civil penalty, along with an injunction against securities law violations in it the future.
The SEC was seeking fines and penalties totaling $2 billion.
“The SEC asked for $2 billion and the Court reduced their request by ~94% acknowledging that they had overplayed their hand,” Ripple CEO Brad Garlinghouse said in a Wednesday post on X.
Garlinghouse added that the court’s decision was “a victory for Ripple, the industry and the rule of law” and that “the SEC’s headwinds against the entire XRP community are gone.”
Many in the digital asset space have been watching closely how the Ripple case has played out because of its broader implications for the SEC’s regulatory power over crypto. And the judge’s decision did little to shed further light on the ultimate issue that founded the SEC’s lawsuit: whether crypto assets are securities.
The court ruling also calls into question the future use of Ripple’s XRP token for cross-border payments, at least by US entities.
Read more: Benefits of Blockchain for Regulated Industries
The Court Case The Crypto Industry Has Been Waiting For
Since the filing of the first SEC lawsuit against Ripple on December 22, 2020, crypto firms have been waiting in the wings for a final ruling on whether or not digital assets are securities.
While they wait, they have continued to sell and mint cryptocurrencies regardless.
As Amias Gerety, Partner at QED Investors, told PYMNTS last summer, “business as usual” may be the best solution for embattled crypto players because it can support their legal standing.
Gerety also added that if the SEC ultimately wins in court, classifying cryptos as securities would not destroy the digital asset industry in the US
But Ripple’s continued sale of its XRP token while the SEC lawsuit continued without a resolution drew comment from the judge overseeing the case.
“To be clear, the Court does not find today that Ripple’s post-complaint sales violated Section 5.5,” Wednesday’s legal ruling said. “Rather, the Court finds that Ripple’s willingness to push the limits of the Order indicates a likelihood that it will eventually (if it has not already) crossed the line. On balance, the Court finds that there is a reasonable probability of future violations, deserving the issuance of a judicial decision”.
And the order means that while XRP is legally “little more than an alphanumeric cryptographic sequence” and not itself a security, Ripple cannot continue to sell land to accredited investors in the US, according to the ruling.
See also: Capturing the Adaptation of Crypto Products to the Market within Cross-Border Payments
What the decision means for cross-border payments
According to the judge’s statement, Ripple had sold its XRP token under “Regulation D” in the US, which – due to the Regulation’s “bad actor disqualification” provision – it can no longer do. That’s because the $125 million fine Ripple was hit with in the same ruling disqualifies it. Ripple asked the judge to waive the disqualification, but the judge refused.
And the disqualification could jeopardize the use of XRP to facilitate payments, especially cross-border payments.
Blockchain-based cross-border solutions, especially stablecoins, are increasingly being embraced by firms looking to find a better way to transact and expand internationally.
“That core problem is how long it takes to move money across borders … you’re being charged serious fees to move money across borders, and you also have an inability to track those payments and know they’ve arrived for sure,” Brooks Entwistle, senior vice president of global customer success and managing director at Ripple, told PYMNTS in an earlier discussion. “As these businesses grow, comes the need to really move value faster and to more places.”
PYMNTS Intelligence finds that, when it comes to cross-border payments, blockchain solutions can offer advantages over traditional systems. This is because blockchain’s high throughput, low fees and 24-hour availability can remove much of the friction of cross-border transactions.
