Ripple Labs provides an international payment network that allows financial institutions to transfer money more cheaply and quickly than traditional international payments. Ripple’s native digital currency, XRP, supports global payments by acting as intermediate currency between different currencies, eliminating correspondent bank’s need to hold deposits in foreign currencies. In an ongoing class action lawsuit, XRP purchasers claim that the digital asset qualifies as a security under federal securities laws and that Ripple illegally offered and sold XRP as an unregistered security. Given Ripple’s rising prominence as a tool for financial institutions, this pending case will impact cryptocurrency markets and international payments. Because XRP is most likely a security subject to regulation by the Securities and Exchange Commission (SEC), this matter poses an existential threat to the Ripple network. This note examines the legal issues leading up to the Ripple litigation and explains why XRP is most likely a security. It concludes by discussing the SEC’s likely approach to Ripple’s unregistered Initial Coin Offering (ICO).
Lindsay Martin, Ripple Effects: How In Re Ripple Labs Inc. Litigation Could Signal The Beginning of the End of the Payment Platform, 19 Duke Law & Technology Review 1-22 (2021)