According to a new report, the U.S. Securities and Exchange Commission (SEC) is actively evaluating whether XRP qualifies as a commodity rather than a security. The discussion is part of ongoing settlement negotiations between the regulatory agency and Ripple, the blockchain company behind XRP.
The comparison between XRP and Ethereum (ETH) is a key factor in the debate. According to financial journalist Charles Gasparino, the SEC weighs whether XRP’s utility and market behavior align more with a commodity than a security.
Gasparino noted that Ethereum was initially issued through an initial coin offering (ICO) and was used to fund a blockchain project similar to XRP.
However, Ethereum was never subjected to a lawsuit like Ripple, as it later evolved into what the SEC recognizes as a commodity. The commission is now considering whether it can apply the same logic to XRP.
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XRP’s Utility and Market Characteristics Under Scrutiny
Industry analysts believe XRP’s utility in cross-border transactions could be crucial to the SEC’s decision. XRP serves as a bridge currency for international remittances, reducing financial institutions’ transaction costs and settlement times.
Unlike traditional banking methods, which rely on intermediaries, XRP enables near-instant fund transfers.
Additionally, XRP operates on the decentralized XRP Ledger, which facilitates fast and efficient transactions without requiring a central authority.
Supporters argue that this structure aligns with the characteristics of commodities rather than securities. Market participants emphasize that XRP’s active trading and payment use case contribute to its evolving classification.
Ripple’s Chief Technology Officer, David Schwartz, added to the discussion by highlighting a crucial distinction between XRP and Ethereum. He pointed out that Ethereum was privately sold before its blockchain or ledger existed, whereas XRP was not.
This raises questions about the consistency of the SEC’s approach in classifying digital assets and whether XRP’s distribution method differentiates it from other crypto assets previously exempted from legal scrutiny.
Ethereum vs. XRP: Key Differences in SEC’s Approach
A significant point of contention in the regulatory debate is the different treatment Ethereum and XRP have received from the SEC. Ethereum was launched through an ICO and initially had a centralized distribution, yet it was eventually classified as a commodity.
Meanwhile, XRP, despite having a decentralized ledger from its inception, faced a lawsuit from the SEC.
Supporters of Ripple argue that Ethereum benefited from regulatory leniency, which allowed it to mature into a widely accepted cryptocurrency. XRP, on the other hand, has been under constant legal scrutiny despite its active role in facilitating payments and financial transactions.
This disparity in treatment has led to ongoing discussions about the fairness and consistency of the SEC’s regulatory framework for digital assets.
As settlement discussions continue, the classification of XRP remains a focal point. A decision favoring its commodity status could have significant implications for the broader cryptocurrency industry.
If the SEC concludes that XRP functions similarly to Ethereum, it may pave the way for regulatory clarity and potential adjustments in enforcement policies related to digital assets.
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