Ripple executives join the discussion on whether XRP is sufficiently decentralized.
Following the release of the much-contested Hinman documents, the cryptocurrency community has continued to debate whether XRP is “sufficiently decentralized.”
For context, when the former director of SEC Corporation Finance, William Hinman, gave the infamous speech at the Yahoo All Market Summit on June 14, 2018, he disclosed that an asset should not be classified as a security if it has become “sufficiently decentralized” from its time of creation. It was on this premise that he declared Ethereum as a non-security.
Hinman also listed certain decentralized factors people must consider when making these “sufficiently decentralized” determinations.
After Hiinman’s doc release, people have been arguing whether XRP is sufficiently decentralized. Some say that the coin is not decentralized because of Ripple’s alleged control over the asset, as the blockchain company currently holds a substantial amount of XRP in escrow.
This has continued to stir the argument that XRP and its native blockchain XRP Ledger (XRPL) are centralized or not sufficiently decentralized.
Ripple CTO Reacts
In response to these allegations, Ripple’s CTO David Schwartz noted that those who claim XRP is not sufficiently decentralized due to Ripple’s control have not been able to prove how the blockchain company could exploit that control to cause investors harm. He asserted that “it cannot be done.”
Nobody who claims XRP or XRPL is not sufficiently decentralized because of Ripple's control has ever described, for any specific threat users want decentralization to protect against, precisely how Ripple could use its supposed control to cause that harm — it cannot be done. https://t.co/WsVZwZpaDA
— David "JoelKatz" Schwartz (@JoelKatz) June 14, 2023
As expected, Schwartz’s remark prompted a series of reactions from cryptocurrency enthusiasts. A Twitter user named John B stated that Ripple’s return of unspent XRP back to escrow “is on the honor system.”
“If 10% was routinely put into a seemingly legit project where it was used to manipulate the price, selling at period highs and buying to maintain a trend,” the user added.
In response, Schwartz affirmed that Ripple holds a huge amount of XRP. He added that if people believe that one party having a huge amount of a blockchain native asset makes it less decentralized, they can also conclude that XRPL is less decentralized, given Ripple’s control.
He clarified that holding vast amounts of a blockchain native asset does not grant the party control over the governance or ledger.
Schwartz has been involved in a series of “decentralization discussions” in the past. Two years ago, he asserted that Uniswap, a famous DEX, is not decentralized. Per Schwartz, any crypto project with “an enforceable legal right to tell people how they use it is not decentralized.”
Ripple’s General Counsel Joins the Discussion
Meanwhile, Ripple’s General Counsel Stuart Alderoty also joined the decentralization discussion on Twitter. The outspoken General Counsel noted that “decentralization” is a technological standard, not a legal one.
When Hinman/SEC make up “decentralization factors” to determine if a token is a security they do so because they want to brush aside the actual legal requirements – “contract for an investment,” “a common enterprise,” etc. – as inconvenient legal truths.
— Stuart Alderoty (@s_alderoty) June 14, 2023
Alderoty referred to Hinman’s “made-up” decentralization factors. According to Alderoty, Hinman and the SEC came up with these factors to brush aside the actual legal requirements of determining which asset is a security under Howey’s analysis.