Ripple Submits Fresh Letter to SEC's Crypto Advisory Committee - Insights Inside
In a recent move, Ripple Labs, the blockchain firm, has sent a comprehensive four-page letter to the US Securities and Exchange Commission's (SEC) Crypto Task Force on May 27, 2025. This letter, penned by Ripple's chief legal officer Stuart Alderoty, was announced with emphasis on responding directly to Commissioner Hester Peirce's "New Paradigm" speech delivered on May 19, 2025. Peirce had raised the crucial question: "When does a non-security crypto asset that was once part of an investment contract become separated from that contract?"
Ripple's submission begins by thanking the SEC for a meeting that took place on May 20, 2025, and presents itself as a scholarly response to Peirce's inquiry. The company draws heavily on the 2022 academic treatise "The Ineluctable Modality of Securities Law" by Lewis Cohen et al., quoting it verbatim: "[T]here is no current basis in the law relating to 'investment contracts' to classify most fungible crypto assets as 'securities' when transferred in secondary transactions..." Ripple maintains that this paper offers the most accurate reflection of existing law.
The company proposes a two-pronged test to determine when a digital asset has definitively "severed" from an accompanying investment contract. This test states that any subsequent sale of the asset is presumed not to be a securities transaction unless (i) a material promise made to the original purchaser remains outstanding and (ii) the subsequent holder retains enforceable rights arising from that promise. Examples of such promises might include commitments to build a functional blockchain or to provide dividends, while "general public statements or puffery" would not qualify.
Ripple positions its framework as consistent with Judge Analisa Torres's landmark ruling in July 2023, which found that XRP itself is not a security, even though certain institutional sales had been considered investment contracts. By referencing that ruling, Ripple reminds the Commission that secondary-market trading of XRP, particularly blind order-book sales, has been judicially blessed as non-securities activity.
Addressing the SEC's concern about potential exploitation of legal gaps, Ripple suggests that closing genuine gaps is the prerogative of Congress, not the SEC. In the interim, Ripple endorses a "well-designed safe harbor" but cautions against vague concepts such as "fully functional" or "sufficiently decentralized" as they offer insufficient regulatory certainty.
Commissioner Peirce's own remarks set the context for this submission. In "New Paradigm," she acknowledged that "most currently existing crypto assets in the market are not [securities]" and expressed difficulty in determining when a non-security crypto asset subject to an investment contract separates from the investment contract. Peirce suggested options such as a time-limited safe harbor. Ripple capitalizes on this momentum, asserting that its bright-line test is superior to "decentralization" metrics and would allow functional networks to circulate tokens "openly, transparently, and permissionlessly" without suggesting control where none exists.
The submission comes at a time when the long-running SEC v. Ripple litigation is edging towards a conclusion. Earlier this month, the Commission filed a proposed settlement that would cap Ripple's institutional-sale liability and lift the remaining injunction on XRP distributions, but the court has yet to approve the agreement. Market reaction to this latest maneuver has been subdued, with XRP continuing to trade near the $2.30 zone.
[1] Previous attempt to present the evidence was denied by the court.[2] This paper remains "the most accurate reflection of existing law."[3] The SEC has continued to appeal aspects of the July 2023 ruling.[4] The SEC dropped its case in mid-2024, but a settlement was reached with Ripple.[5] Regulatory uncertainty remains high, and legal discussions around XRP’s classification continue, despite the settlement.
- In the letter, Ripple references an academic treatise written in 2022, stating that it offers the most accurate reflection of existing law regarding classifying digital assets as securities or non-securities.
- Ripple's proposed two-pronged test for determining when a digital asset has definitively "severed" from an investment contract emphasizes that any subsequent sale of the asset is presumed not to be a securities transaction unless a material promise made to the original purchaser remains outstanding and the subsequent holder retains enforceable rights arising from that promise.
