Ripple to SEC – Staking, yield mechanisms are ‘not securities’
SEC begun its public engagement on security status of crypto assets as a pathway for regulatory clarity.
- Ripple defended crypto staking as a non-security, especially in permissionless protocols
- However, ICOs were securities as they could be deemed ‘investment contracts’
Ripple is in the news today after it urged the Securities and Exchange Commission (SEC) not to categorize staking and yield programs as securities. This, after a recent public call by the agency for comments on the security status of crypto assets.
In its statement to the agency, Ripple stated,
“For clarity and consistency, the Commission should confirm that staking and yield-generating arrangements dependent on the programmatic functioning of a public, permissionless network that do not involve a definable issuer or counterparty making investment commitments are not securities.”
Ripple – “Staking isn’t a security”
Ripple noted that classifying crypto staking or yield farming as securities relies on the business model and the parties involved. However, protocol-based arrangements with no clear counterparty shouldn’t fall within the security definition.
“Such arrangements do not involve an investment with a definable counterparty, unlike traditional securities, which are premised on a contractual agreement between an investor and an issuer who undertakes managerial efforts to generate profits.”
The firm argued that ICOs (initial coin offerings) let founders raise capital to create blockchain or digital assets. But they promise investors tokens later. So, these could be seen as securities or ‘investment contracts.’
This is part of a broader public collaboration by the agency to address the security status of crypto assets. In fact, on Friday, the agency held its first roundtable on the issue. Commissioner Hester Pierce is confident talks like these would enhance clarity in the sector.
“Today’s panelists have to address definitional questions—so we can build the shed—design a sturdy and functional regulatory framework.”
During the latest roundtable, panelists shared various views on defining ‘crypto securities’ and applying the Howey test. Here, it’s important to note that the dismissed lawsuits against Coinbase and Ripple were tied to claims of breaking securities laws.
A detailed report from the SEC’s crypto task force, based on the roundtables, would shape the rules for the sector.
In fact, Ripple’s legal chief Stuart Alderoty has urged the agency to stick to its limits while creating a new framework for the sector.
“We urge the SEC’s Crypto Task Force to stay focused: return to first principles, stay within its statutory bounds, and finally bring relief through clarity.”
