- Pro-XRP lawyer challenges stablecoin-as-security concept.
- Ripple’s legal officer critiques SEC’s token-centric litigation.
- Terraform Labs case sparks debate on crypto regulations.
In a landmark ruling by US District Judge Jed Rakoff, the Terraform Labs case witnessed the US Securities and Exchange Commission (SEC) prevailing, triggering ripples of concern within the cryptocurrency community. The focus of the case was on cryptocurrency entrepreneur Do Kwon and his company Terraform Labs, accused of violating US law by neglecting to register two digital currencies that eventually collapsed in 2022 — the TerraUSD stablecoin and Luna (LUNC).
Stablecoin Security Under Scrutiny
Pro-XRP lawyer Jeremy Hogan took to social media to express his reservations regarding the classification of stablecoins as securities. Hogan’s skepticism revolves around the fundamental question of how a stablecoin, typically pegged to a specific value like the US dollar, can be labeled a security. He argues that stablecoins, designed to maintain a stable value and serve as a digital representation of traditional currency, may not exhibit characteristics traditionally associated with securities.
Hogan points to Judge Rakoff’s ruling, asserting that a stablecoin qualifies as a security when it can be staked for a return on investment, regardless of whether investors stake it or not. He challenges the notion of expecting profits from something pegged to a stable value like the dollar.
The lawyer also raises concerns about the understanding of new technologies among older individuals in positions of power, suggesting that a grasp of emerging technologies, including cryptocurrencies, is essential for making informed decisions and shaping appropriate policies.
Contrasting the Ripple Case
Stuart Alderoty, Chief Legal Officer of Ripple, weighed in on the Terraform Labs ruling, emphasizing the importance of factual considerations. He noted that Judge Rakoff did not criticize or reference Judge Torres’ ruling in the Ripple case. However, Alderoty criticized the SEC’s approach of engaging in lengthy litigation on a token-by-token basis, viewing it as a pursuit of political power rather than sound policy.
Journalist Eleanor Terret drew attention to a key difference between the Terraform Labs case and the Ripple case. Terret highlighted that Judge Rakoff established the existence of an “investment contract” between Terraform Labs and retail investors based on the Howey Test. This was rooted in Kwon’s statements that led investors to believe they could profit from Terraform’s blockchain development efforts.
In contrast, Judge Torres was unable to establish a similar contract between Ripple and non-institutional purchasers of XRP. These developments have ignited a broader discussion on the classification of stablecoins as securities, prompting legal experts and industry stakeholders to voice concerns. The outcome of these debates could significantly influence future regulations and policies surrounding cryptocurrencies and their legal classifications.
Disclaimer: Please note that the viewpoints and perspectives expressed by the author, as well as any individuals referenced in this article, are intended solely for informational purposes. They should not be construed as financial or investment advice. It’s important to acknowledge that investing in or trading cryptoassets carries inherent financial risks.