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New Evidence Suggests that XRP Could be Deemed a Security

A document resurfaced on the internet providing concise evidence that Ripple created XRP and that the firm is selling the token in excess of need for profit.


The lawsuit against Ripple


On Aug. 5, 2019, a new complaint was filed against Ripple. The filing argues that the firm’s tokens are unregistered securities under the U.S. Securities and Exchange Commission’s framework.


The lawsuit also claims that the distributed ledger startup broke a number of laws in the state of California. Ripple allegedly “blurred differences between Ripple’s enterprise solutions and XRP to further drive demand,” and “paid exchanges to list XRP, limiting the supply of XRP to drive demand.”


Now, evidence resurfaced supporting the argument that Ripple was the main entity behind the development of XRP. Additionally, the data suggests that the company and its members are selling this cryptocurrency for the purpose of enriching themselves.


The SEC’s arguments


William Hinman, Director of the Division of Corporation Finance of the SEC, believes that there are different elements to determine if a digital asset is a security. The principal factor is whether a “third party drives the expectation of a return” and if the funds are used to “increase the value of the enterprise.”


Hinman wrote:


“Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network, and, if so, has it indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise? Does the promoter continue to expend funds from proceeds or operations to enhance the functionality and/or value of the system within which the tokens operate?”


Based on Hinman’s perspective, it seems like XRP meets all the characteristics to be deemed a security. Ripple’s business model relies on selling cross-border payment solutions to banks and money transfer providers. The majority of their revenues are generated through the sales of XRP on public market exchanges and private financial institutions with the purpose of increasing the value of the company and for personal gain.


Evidence suggests XRP is a security


In 2018, David Schwartz, Ripple’s CTO, admitted that the firm’s main source of revenue is the sale of XRP and that these funds are used to increase the value of Ripple. Read More...

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