Stuart Alderoty, Ripple’s Chief Legal Officer, has proposed a simplified framework for regulating cryptocurrencies. He suggests that only tokens granting equity or profit rights should be classified as securities. According to Alderoty, this approach would reduce legal ambiguity and align more closely with established securities laws, benefiting developers, investors, and regulators alike.
Alderoty explains that tokens with financial rights—such as equity, debt interests, or entitlements to profits or liquidation proceeds—meet the criteria for securities. In this manner, regulators could reduce viable instances of legal complexity by analyzing those particular cases. Such a specialized approach would advance blockchain development while at the same time minimizing legal exposure for companies involved in the digital asset industry.
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Addressing Decentralization Metrics in Token Classification
Alderoty also highlights the drawbacks of using decentralization as a metric for determining whether a token is a security. MetaLawMan, a well-known voice in crypto regulation, has similarly criticized this reliance on subjective measures. Decentralization often lacks a precise definition, creating uncertainty for developers and investors while enabling legal professionals to exploit these ambiguities, leading to expensive litigation and regulatory inconsistencies.
Reducing the token classification complexities would clarify the legal framework, thereby reducing litigation costs and enhancing confidence in blockchain solutions. The regulators could reduce market volatility by excluding decentralization as the main criterion.
Aligning with Established U.S. Securities Laws
Alderoty also noted that U.S. securities laws evolved over the years to provide clear direction on regulating tokens. Special rights to dividends, revenue shares, or liquidation proceeds resemble characteristics of trademark securities and should be treated as such in the course of legal regulation. On the other hand, tokens with price appreciation or other forms cannot meet these criteria and should not be covered under securities law.
The Financial Innovation and Technology for the 21st Century Act (FIT21) draft currently leans on decentralization metrics. Alderoty advocates revising this approach to ensure a consistent framework, fostering innovation while reducing compliance challenges. Simplified definitions would pave the way for responsible growth in the digital asset industry.
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