Has Ripple walked away with a win against the SEC?

Today, enjoy the Empire newsletter on Blockworks.co. Tomorrow, get the news delivered directly to your inbox. Subscribe to the Empire newsletter.

---

The end is nigh

We’re nearly at the close of the SEC’s battle with Ripple Labs. For real this time. 

I say nearly because while Judge Analisa Torres issued her final judgment yesterday, the two parties are still able to appeal the judgment.

Late yesterday, Torres ordered Ripple to pay a penalty of $125 million. The sum is way below the $2 billion sought by the SEC — and that figure does not include disgorgement or prejudgment interest, of which the SEC sought massive sums of $876 million and $198 million. 

At the same time, the penalty is far above the $10 million Ripple Labs requested when it pushed back against the agency. You could consider this a win for the crypto firm.

But that’s also why one lawyer told me that the SEC is likely to appeal the judgment. 

Loading Tweet..

Ripple executives are, at least, publicly claiming this judgment as a win, which might suggest that they don’t plan to appeal

I mean, just looking at the numbers again, it would make sense for Ripple Labs to be pretty happy to pay a penalty 94% below that multibillion-dollar sum. Especially given its expensive legal battle these past few years. 

But the SEC also thinks that they took away a bit of a win, it would seem. An SEC spokesperson told me via email:

“The Court granted the SEC’s motion for remedies including an injunction barring Ripple from committing additional violations of the securities laws and significant civil monetary penalties totaling more than 12 times the amount Ripple suggested was appropriate.

As the Court found, the fact that Ripple has shown a ‘willingness to push the boundaries of the [Court’s summary judgment] Order evinces a likelihood that it will eventually (if it has not already) cross the line. The Court also addressed ‘the egregiousness of Ripple’s conduct’ and noted that ‘there is no question that the recurrent, highly lucrative violation of Section 5 is a serious offense.’

As court after court has stated, the securities laws apply when firms offer and sell investment contracts, regardless of the technology or labels that they use.”

Stuart Alderoty, the chief legal officer at Ripple Labs, said they ”respect” the judgment.

Loading Tweet..

The judgment says Ripple is enjoined from “further violations of the securities laws” on top of the penalty after finding that the firm violated Section 5 regarding institutional sales. As a refresher, when the court ruled last summer, Torres said that programmatic sales weren’t securities but she found that the institutional sales did meet Howey’s criteria. 

While the language around the securities violations is admittedly vague, one lawyer told me that it seems to apply only to the institutional sales discussed in the complaint — not to either of the individual sales from Garlinghouse or co-founder Chris Larsen (the SEC dropped its trial against them late last year), or to the programmatic sales or other distributions. 

“To be clear, the Court does not today hold that Ripple’s post-Complaint sales have violated Section 5. Rather, the Court finds that Ripple’s willingness to push the boundaries of the Order evinces a likelihood that it will eventually (if it has not already) cross the line. On balance, the Court finds that there is a reasonable probability of future violations, meriting the issuance of an injunction,” the court said.

So basically, Ripple can keep on keeping on following this penalty. 

And so one of the overhangs in crypto may finally be put to rest (unless someone appeals).

— Katherine Ross

Data Center

• XRP spiked up to 27% after word of the settlement broke. It has since retraced slightly to $0.6112 (up 22%).
• TAO and TON follow with 8.3% each over the past day. Grayscale announced a new bittensor trust on Wednesday, alongside one for sui.
• HNT, FTN and XLM are the only top-100 coins to gain ground in the past week, between 8% and 2%.
• The XRPL ledger sees about 300,000 payments per day right now, according to XRPScan. It recorded about half that this time in 2022.
• About a thousand new accounts are created per day, with the whole network recently processing as much as $2.26 billion in daily volume.

Ripple into a wave

The XRP army can finally breathe.

We already had most of the verdict squared away. But now we’re indeed closer than ever, barring potential future appeals or slip ups from Ripple Labs in regard to XRP sales to institutions.

Whether Ripple Labs selling XRP to retail — say via crypto exchanges or other such offerings — constituted investment contracts was the most dangerous question mark looming over the token. That was sorted out last June (retail sales were not securities).

The part about institutional sales was really only expected to come down to a financial penalty. Like Katherine said, Ripple Labs can most likely afford it without breaking the bank, making it hard to disagree that it’s clear skies ahead for the firm, its founders, and XRP itself.

Relief couldn’t have come sooner. XRP has largely missed out on the most recent bull market, even if it was able to catch the one that came before.

XRP tracked bitcoin’s returns during the first half of the 2021 cycle — both went over 400% between August 2019 and May 2021.

Not so during our current bull market, which depending on how you skew it, started after the worst of the FTX crisis passed back in November 2022.

Notice on the chart above that bitcoin and ether both climbed by hundreds of percentage points throughout 2023 and the first half of 2024. 

XRP meanwhile managed at most about 150% returns. Its five-year performance to date has practically matched the five-year returns of the S&P 500, about 90%.

There could be many reasons why XRP hasn’t pumped quite as hard as many other cryptocurrencies, even though it’s still the seventh largest by market cap at $34.5 billion.

That it’s an older project in a sea of shiny new networks and protocols may be one. Another could be that stablecoins have made its primary value proposition — cross-border remittances — obsolete.

Current lore also says the most recent bull market was led by institutions, and how could institutions push XRP higher if their direct purchases were, in fact, unregistered securities?

Speaking of, according to Ripple Labs’ quarterly blog posts, the firm had sold $14 billion worth of XRP directly to institutional investors (and other users of its ledger) since the SEC’s lawsuit arrived.

Ripple Labs then directed $10.9 billion of those funds to buying XRP programmatically, on crypto exchanges. That converts to Ripple spending 78% of the funds generated from its primary revenue stream on participating in XRP spot markets. 

“Since 2020, Ripple has sourced XRP from the open market to ensure there is a sufficient supply of XRP available for our growing ODL business,” Ripple said in a disclosure a few years back.

“We continually strive to minimize undue market impact with our purchases by, for example, limiting how much and from whom we purchase XRP.” The firm had initially described its buybacks as a way to “support healthy markets.”

So, now that Ripple Labs has its own blend of regulatory clarity, perhaps the sales, buybacks and institutional adoption could flow once more. Happy days.

— David Canellis

The Works

• A judge approved the $12.7 billion settlement between FTX, Alameda and the CFTC per a Wednesday court filing. 
• Robinhood’s crypto revenue was up 161% to $81 million last quarter, the company said.
• Meltem Demirors, formerly of CoinShares, is looking to raise $75 million for new venture funds, Fortune reported.
• The cooperation following the sanctioning of Tornado Cash was somewhat effective, but “mixed,” the New York Federal Reserve found. 
• MicroStrategy’s Michael Saylor owns roughly $1 billion in bitcoin, he told Bloomberg.

The Riff

Q: Where does crypto go from here?

It leads crypto down a series of deep questions:

Is the threat of a $125 million fine, out of billions in potential revenue, a proper deterrent? 

How many wins — either literal or spiritual — does it take for crypto to start ignoring the SEC all over again?

(It is however much more than Block.one paid over the EOS initial coin offering, only $24 million against $4 billion!)

Is this regulatory clarity?

Is Ripple actually decentralized?

The seeming end of the XRP lawsuit feels like everything and nothing at the same time. 

I’m sure it moved the needle — we just might not find out in what direction we’re going until the next few cases are done, too.

— David Canellis

Anywhere, everywhere!

No but really, this judgment all but buttons up an intense case that set the tone for crypto’s approach to the SEC’s regulation through enforcement. Putting aside the appeal potential, it’s pretty massive to see this wind down. 

I think the lawyers for Coinbase and Binance will be studying this case closely to arm themselves as they continue their own battles, though admittedly they’re in different boats than Ripple. 

And I think crypto can sleep easy tonight. The judgment held no curveballs, and the court stayed in-line with what it ruled last summer. The $125 million is still a hefty sum, no doubt about that, but I think multimillion is so much better than multibilllion. 

You live and you learn, and then you grow. We’ll see, but this could be a catalyst for XRP. 

— Katherine Ross

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.