Ripple has submitted an additional letter to the U.S. SEC, addressing a pivotal question about when a token should lose its security label.
Stuart Alderoty, Ripple’s Chief Legal Officer, highlighted the company’s letter in a post on X. According to him, Ripple sent the letter to the SEC’s Crypto Task Force, which Commissioner Hester Peirce leads.
Today, @Ripple submitted an additional letter to the SEC’s Crypto Task Force addressing a key question from Commissioner Peirce’s “New Paradigm” speech: When does a digital asset separate from an investment contract?
We appreciate the continued engagement with the Task Force.…
— Stuart Alderoty (@s_alderoty) May 27, 2025
Ripple Addresses Question About Token’s Security Classification
The letter focused on Peirce’s recent speech, The New Paradigm, in which she asked, “When does a digital asset separate from an investment contract?”
Responding to the question, Ripple drew on existing securities law analysis from prominent legal experts, such as Lewis Cohen et al. In that analysis, Cohen argued that the current U.S. investment contract law does not classify routine transfers of most fungible crypto assets in secondary markets as securities.
Ripple emphasized that Judge Analisa Torres reinforced this view in her landmark decision in July 2023 in its case against the SEC. Specifically, while the judge ruled that Ripple’s sales of XRP to institutional clients constituted securities, she determined that the company’s secondary market sales of XRP did not constitute investment contracts.
Moreover, Ripple mentioned that the judge also ruled that XRP is not a security in itself, even though it was previously sold to institutional investors as part of an investment contract.
Congress, Not the SEC, Should Address Gaps in Securities Laws
Meanwhile, Ripple acknowledged the SEC’s concerns about the possibility of bad actors exploiting the current state of the law to evade accountability. Nonetheless, it emphasized that the U.S. Congress is responsible for filling any gaps in the law, rather than the SEC.
“Lawmakers are in charge of establishing new legal standards. The SEC’s adherence to existing law would significantly reduce market confusion,” Ripple remarked.
However, it stated that the SEC’s reliance on vague concepts, including the ‘sufficiently decentralized’ principle, could compound the market’s uncertainty.
In establishing new laws to fill the gap in existing ones, Ripple suggested that Congress could consider the maturity of the network to determine when a token severs its initial investment contract ties.
It emphasized that once a token is mature, it can circulate within the market without requiring an exemption under securities law.
Ripple Proposes Safe Harbor to Protect Good Actors
Meanwhile, Ripple also proposed a safe harbor to protect good actors in the market. It believes the so-called safe harbor would not only reduce enforcement risks but also provide clear compliance guidance for market participants.
When a Token Should Sever Ties to Its Initial Security Status
Furthermore, Ripple referenced existing law to clarify when a token initially sold under an investment contract ceases to be considered a security. According to Ripple, if a token was initially offered as part of an investment contract, subsequent sales of the asset should not be deemed a security unless both of the following conditions are met:
- When the issuer has not fulfilled the material promise it made to the original purchaser.
- If the current holder still has enforceable rights against the issuer tied to that promise.
In conclusion, Ripple emphasized that tokens and networks that have operated transparently in broad, liquid markets for an extended period should not be subject to new securities law obligations, especially those related to disclosure and registration.
The company argued that such assets have become integrated into the financial system and no longer pose the regulatory risks that concern the SEC.
This is not the first time that Ripple has written to the SEC regarding crypto-related regulations. In March, it wrote a letter proposing three solutions to help the commission address the regulatory confusion in the crypto market.
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