In a groundbreaking move, Ripple, the blockchain company behind XRP, has sent a letter to the US Securities and Exchange Commission (SEC) stating that fungible cryptocurrencies involved in secondary sales should not be classified as securities. This assertion, supported by leading crypto law expert Lewis Cohen’s 2022 paper—“The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are Not Securities”—reflects Ripple’s commitment to transparency and innovation in the crypto trading, DeFi, and Web3 arenas.

Understanding Fungible Cryptos and Secondary Sales

Fungible cryptos, which are interchangeable units of the same asset, are at the heart of a debate that could reshape crypto regulation. Ripple’s letter underscores that when these assets are transferred in secondary sales, they do not meet the legal definition of “investment contracts” that would therefore classify them as securities. This is crucial for traders and developers in decentralized finance (DeFi) who seek an unburdened regulatory framework.

The Legal Perspective: Insights from Lewis Cohen

Lewis Cohen, a revered authority in crypto law, noted in his influential research that “there is no current basis in the law relating to ‘investment contracts’ to classify most fungible crypto assets as ‘securities’ when transferred in secondary transactions.” Ripple’s reliance on this perspective not only bolsters its argument but also highlights the ongoing evolution of securities law in relation to digital assets.

Implications for Crypto Trading and DeFi

This legal stance has significant implications for the future of crypto trading and decentralized finance. By clarifying that fungible cryptos in secondary transactions are not securities, Ripple’s argument could pave the way for clearer regulatory guidelines, fostering innovation and reducing the legal ambiguity that currently challenges the industry.