The court ruling in the case Ripple vs. SEC has been a hot topic in the crypto community, with crypto companies cheering Ripple’s XRP lawsuit win and critics calling the decision strange. However, regardless of which side you’re on, the ruling is significant for the crypto market, but not necessarily for the reason you might think.
The ruling stated that Ripple’s XRP token sales on crypto exchanges should not be counted as “securities sales,” which has sparked controversy among consumer protection activists who argue that the ruling is downright wrong. However, the real significance of this court ruling for the web3 industry lies in the fact that it challenges US regulators’ long-standing mental model about crypto regulation.
The existing framework of financial regulators like SEC is to treat the application of securities law like a pregnancy test— something can either be a security or not, just like nobody can be only somewhat pregnant. But the NY district court ruling is saying whether a token is a security depends on the context. The same token can be deemed as a security in some situations but not in others.
This is a huge shift in perspective that acknowledges the fact that tokenization is a versatile tool to represent and distribute values in a digital economy in more novel and efficient ways than what could be possibly imagined in a securities law written 100 years ago. In some cases, token returns earned by token holders depend on the effort of the company, but there’s no investment of money. These returns should be more appropriately counted as part of the company’s “cost of goods sold” (COGS) or “selling, general & administrative costs” (SG&A), i.e. as an expense, not a residual claim as entitled by shareholders.
Therefore, Ripple’s XRP token may not necessarily be worthless after the SEC case, as the ruling has introduced much-needed fresh thinking that should help nudge the regulatory framework to keep up with changing times. The ruling is a conversation shifter that introduces the idea that crypto regulation needs to be context-dependent, which should give companies and projects more leeway to develop other token use cases aside from being a blockchain version of equities.
Looking ahead, while the impact of this recent ruling on Ripple’s XRP token price may be short-term, the bigger ramification will likely be gradual. The ruling has introduced a new perspective on crypto regulation that acknowledges the versatility of tokenization and its potential to represent and distribute values in a digital economy. Therefore, Ripple’s XRP token may still have value as it can be used for other token use cases, and the ruling may help shape future crypto regulations in a way that benefits the industry as a whole.