No ICO Is No Excuse, LBRY Ruling Shows — Bad News for Ripple?

A federal judge has ruled there is enough evidence to make a decision about the SEC v. LBRY case without moving forward to trial, but an appeal is still possible

article-image

Source: DALL·E

share

In a move that could have serious repercussions for Ripple and other cryptocurrency companies, a federal judge has ruled crypto startup LBRY completed an unregistered security offering when it sold LBC, the protocol’s native token. 

The summary judgment, which prevents the case from moving to trial, puts a tentative end to LBRY’s legal battle that started last year. 

The SEC sued LBRY in March 2021 for offering the tokens without first registering with the agency. Although the LBRY team did not offer tokens to the public in an initial coin offering (ICO) or similar mechanism, they did keep tokens for themselves in a ‘pre-mine’, which were subsequently released on secondary exchanges to fund operations.

In the summary judgment, a federal judge argued that the tokens incentivized the team to build the network, suggesting to investors that LBC would be a profitable investment on the secondary market. 

“LBRY has — at key moments and despite its protestations — been acutely aware of LBC’s potential value as an investment,” the summary judgment filed Monday reads. “And it made sure potential investors were too.” 

The judgment cites Reddit threads where LBRY’s community manager told potential investors the token could be “worth something in the future.” It also claims that the token has both consumptive and investment uses — the latter making it a security, as it falls foul of the Howey Test.

The Howey Test, which determines what qualifies as an “investment contract” subject to securities laws, has been a hot topic in the crypto industry as the SEC ramps up its enforcement actions against projects and tokens. Monday’s news is not terribly surprising, Mike Selig, counsel at Willkie Farr and Gallagher LLP, said.

“The summary judgment opinion lends support to the SEC’s longstanding view that a very narrow band of cryptoassets are outside the scope of the federal securities laws based solely on the grounds that the tokens have consumptive use (or utility),” Selig said.

What could this mean for Ripple’s landmark SEC case?

The ruling could be particularly bad for other companies or organizations that are closely associated with utility tokens, including Ripple, which is currently fighting its own legal battles over the XRP token (down 3.3% in the past 24 hours), and projects such as Filecoin (FIL), Selig said. Ripple’s offering was also not an ICO, which, based on Monday’s judgment, may no longer be a sound defense. 

“The SEC has made its position on ‘utility tokens’ clear through dozens of enforcement actions over the past five years,” he said.

“The great irony of the SEC’s enforcement actions against utility token projects is that they’ve pushed the crypto industry in a positive direction toward decentralization,” he added. 

When the SEC sued LBRY, the protocol argued it was not given fair notice and due process, a point Monday’s judge swiftly dismissed. 

“In pressing this argument, LBRY has abandoned any broad claim that it lacked fair notice of the way in which the Howey test applies to digital tokens in general,” the judgment reads. 

LBRY acknowledged the setback but could opt to appeal Monday’s ruling, in which case the parties may battle it out in trial. 

Loading Tweet..

The protocol acknowledged the ruling on Twitter Monday but insisted that the team was “not giving up.” 

“We’ve got a bright team, tens of millions of pieces of content, hundreds of thousands of creators, and one of the most popular web3 apps in the world,” the company’s tweet read. 

LBRY did not immediately respond to Blockworks’ request for further comment.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

Research Report Templates (19).png

Research

Suilend has grown into the top money market and liquid staking provider on Sui. STEAMM, Suilend’s Superfluid AMM, presents a compelling avenue for growing market share within Sui’s DEX landscape and revenue generation for the protocol. Suilend’s multi-product suite position it well for owning market share across key verticals. While current metrics across the Sui ecosystem are likely inflated due to Sui Foundation incentive programs, SEND trades at amongst the lowest multiples in the lend/borrow sector, suggesting that a bull case for continued growth in the ecosystem may be mispriced.

article-image

Kraken will soon offer Backed ‘xStocks’ as Solana tokens

article-image

In a unanimous decision, the US Court of International Trade has ruled that Trump’s IEEPA tariffs are unlawful

article-image

The platform has over $22 million in assets and allows anyone to invest in tokenized real estate

article-image

Crypto games can face financial losses if they don’t take steps to squash bot accounts

article-image

Strive board member Ben Werkman expects thousands of firms to hold BTC, if only “to protect themselves”

article-image

To date, 12.6 million humans have scanned at a World Orb