Analysis: Is XRP really not a security? See what the court documents say.

Source: Jinze 金泽（@ @JinzeJiang0x0 ）, LD Research

After reading the original text of the court, the most crucial question is whether XRP itself is considered a security? There is no direct confirmation, and this document does not cover all of the SEC's allegations. XRP claims to be a "commodity" similar to gold, silver, and sugar, but the court believes that even so, depending on the sales situation, commodities can also be considered investment contracts. Therefore, the court reviewed the different sales and distribution situations surrounding XRP, and determined whether these specific situations were sales of securities or investment contracts. This cannot lead to the conclusion that many people think that "air coins are not securities."

The document discusses three sales scenarios: institutional sales, programmatic sales, and other distribution. Among them, the SEC's motion was accepted for institutional sales, which means that the court believes that XRP's behavior in this area violates securities laws because institutional investors know that this is something that speculators and others buy to profit. However, the original term "Programmatic Sales" is worth pondering.

Focus: The sales subject here is the Ripple project party. "Programmatic sales" refers to the sales Ripple makes to "programmatic buyers" on digital asset exchanges, not all retail investors in the secondary market. It is incorrect to understand that "the secondary sales of altcoins do not violate securities laws".

The figure below shows that the collection of secondary buyers includes programmatic buyers.

Because the buying and selling transactions of programmatic sales are completed by programs, the order book is anonymous, and buyers cannot know whether their money is paid to Ripple or other XRP sellers. Since 2017, Ripple's programmatic sales have accounted for less than 1% of the global XRP trading volume. Therefore, most people who buy XRP on digital asset exchanges do not invest their money in Ripple.   

The third scenario is "other distribution", which includes: Ripple distributes XRP as compensation to employees. Ripple distributes XRP to third parties, who then sell XRP on the public market to raise funds for their projects.

The court believes that these "other distributions" do not meet the definition of an investment contract. According to the first prong of the Howey test, an investment contract requires an "investment of money." However, in these "other distributions," the employees or third parties receiving XRP did not pay money to Ripple. Therefore, the court does not support the SEC's view.   

What if an institution, whether it is a first-tier or a Ripple partner, obtains XRP and sells it on the secondary market? Is it a violation? It's hard to say, it depends on the specific trading behavior and situation. For example, according to the Securities Trading Law, no one may engage in securities trading with unqualified investors unless the transaction is conducted on a national securities exchange registered under Section 78f of the Securities Act. Alternatively, if the trading volume of the exchange is limited, the committee may exempt the exchange because it is deemed impractical, unnecessary, or contrary to the principles of public interest or investor protection.

The judgment document of the Southern District Court of New York in this case specifically stated that the court did not discuss whether the secondary market sales of XRP constituted sales of investment contracts, as the SEC did not submit this as a direct issue to the court. The SEC's main focus was on the sales and distribution of XRP, which violated securities laws. The allegations against founders Larsen and Garlinghouse for unregistered personal sales of up to $600 million were not discussed in detail in this court document.

So obviously, this matter is not over yet.

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