In the opening lines of the letter Ripple thanks staff for a 20 May meeting and frames its submission as a doctrinal answer to Peirce’s query. It leans on the 2022 academic treatise The Ineluctable Modality of Securities Law by Lewis Cohen et al., quoting it in full: “[T]here is no current basis in the law relating to ‘investment contracts’ to classify most fungible crypto assets as ‘securities’ when transferred in secondary transactions…” Ripple argues that the paper remains “the most accurate reflection of existing law.”
The company advances a two-pronged litmus test for determining when a token has definitively “severed” from an accompanying investment contract. Under Ripple’s proposal, any later sale of the asset is presumed not to be a securities transaction unless (i) a material promise made to the original purchaser remains outstanding and (ii) the subsequent holder retains enforceable rights arising from that promise. Examples of qualifying promises, the letter states, would include commitments to build a functional blockchain or to provide dividends—whereas “general public statements or puffery should not qualify.”
While recognizing the SEC’s worry that bad actors might exploit legal lacunae, Ripple tells the agency that closing any genuine gap is “Congress’s—not the SEC’s—to fill.” In the interim, Ripple endorses a “well-designed safe harbor” but warns that concepts such as “fully functional” or “sufficiently decentralized” are too malleable to anchor regulatory certainty.
Commissioner Peirce’s own remarks supply the backdrop. In “New Paradigm” she conceded that “most currently existing crypto assets in the market are not [securities]” and highlighted the difficulty of “determining when a non-security crypto asset subject to an investment contract separates from the investment contract.” Peirce floated, among other options, a time-limited safe harbor. Ripple seizes on that momentum, contending that its bright-line test is superior to “decentralisation” metrics and would let functional networks circulate tokens “openly, transparently, and permissionlessly” without imposing disclosures that suggest control where none exists.
Market reaction has been muted. XRP continues to trade near the $2.30 zone.
