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

July 14, 2023
Newton Team
July 14, 2023
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.

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.

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.

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.

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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