Understanding XRP: An Overview of its Purpose and the SEC Lawsuit Timeline

What is XRP?

XRP is a digital currency that operates on the RippleNet blockchain platform, developed by Ripple Labs. Unlike traditional banking systems that rely on intermediaries and multiple currencies for international transfers, XRP acts as a bridge currency. It enables the seamless transfer of value between different fiat currencies, eliminating the need for multiple conversions and reducing transaction costs and time delays. XRP utilizes a consensus algorithm known as the Ripple Protocol Consensus Algorithm (RPCA).

Overall, XRP aims to revolutionize cross-border payments by providing a fast, cost-effective, and efficient solution for transferring value across different currencies.

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Why does it matter if XRP is a security?

The definition of a security is quite broad. But, if something is deemed to be a security, then in many jurisdictions (USA and Canada included), this will determine how it is regulated. The test to determine whether an investment is a security or not is called the “Howey Test” in America, and the “Pacific Coin Test” in Canada. When something is determined by that test to be a security, that then means that it needs to be compliant with the applicable securities regulations. These regulations tend to be complex, onerous, and intensive.

If XRP were determined to be a security, this would have been a coup for the SEC who assert Ripple is offering an unregulated security, and that SEC regulations should govern the trade of XRP. However, this ruling that XRP is not a security cast doubts on the SEC’s claim.

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Overview of the SEC Lawsuit

December 2020

• The U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs and two of its executives, Bradley Garlinghouse and Christian A. Larsen, for selling XRP tokens, which the SEC claimed were unregistered securities.

March 2021

• Ripple Labs filed a motion to dismiss the SEC lawsuit, arguing that XRP is not a security and that the SEC had waited too long to bring the case.

May 2021

• The SEC filed a response to Ripple Labs' motion to dismiss, arguing that XRP is indeed a security and that the SEC had not waited too long to bring the case.

July 2021

• Ripple Labs filed a motion to compel the SEC to produce documents related to the SEC's determination that Bitcoin and Ether are not securities.

August 2021

• The SEC filed a motion for an extension of time to conduct discovery in the case.

September 2021

• The court denied Ripple Labs' motion to compel the SEC to produce documents related to the SEC's determination that Bitcoin and Ether are not securities.
• The court granted the SEC's motion for an extension of time to conduct discovery in the case.

October 2021

• Ripple Labs filed a motion to dismiss the SEC lawsuit on the grounds of regulatory estoppel, arguing that the SEC had previously given informal guidance to the company that XRP was not a security.
• The court denied Ripple Labs' motion to dismiss the case on the grounds of regulatory estoppel.

January 2022

• The SEC filed a motion for summary judgment, arguing that there were no material facts in dispute and that the court should rule in its favor as a matter of law.

July 2022

• The court denied the SEC's motion for summary judgment, ruling that there were material facts in dispute that needed to be resolved at trial.

January 2023

• Ripple CEO Brad Garlinghouse expressed confidence that the company would soon receive a ruling in the SEC lawsuit.

March 2023

• The court set a trial date for the SEC lawsuit against Ripple Labs and its executives for November 2023.

July 2023

• A US federal judge ruled that sales of XRP token over public cryptocurrency exchanges were not offers of securities under the law. See the official court documents here.
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After the July 2023 ruling, XRP's journey has gained clarity. Despite the legal challenges, XRP remains a prominent bridge currency in the cryptocurrency space, shaping the regulatory framework for digital assets and emphasizing the significance of legal clarity and compliance in the evolving cryptocurrency landscape.
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As Ripple said, “This victory for Ripple is a win for the entire industry and a step toward regulatory clarity in the U.S.”

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