In this photo illustration, a visual representation of the digital Cryptocurrency Ripple is displayed on January 30, 2018 in Paris, France.
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Blockchain startup Ripple is confident U.S. banks and other financial institutions in the country will start showing interest in adopting XRP in cross-border payments after a landmark ruling determined the token was not, in itself, necessarily a security.
The San Francisco-based firm expects to start talks with American financial firms about using its On-Demand Liquidity (ODL) product, which uses XRP for money transfers, in the third quarter, Stu Alderoty, Ripple's general counsel, told CNBC in an interview last week.
Last week, a New York judge delivered a watershed ruling for Ripple determining that XRP, a cryptocurrency Ripple is closely associated with, in itself was "not necessarily a security on its face," contesting, in part, claims from the U.S. Securities and Exchange Commission against the company.
Ripple has been fighting the SEC for the past three years over allegations from the agency that Ripple and two of its executives conducted an illegal offering of $1.3 billion worth via sales of XRP. Ripple disputed the claims, insisting XRP cannot be considered a security and is more akin to a commodity.
Ripple's business suffered as a result, with the company losing at least one customer and investor. MoneyGram, the U.S. money transfer giant, ditched its partnership with Ripple in March 2021.
Meanwhile, Tetragon, a U.K.-based investor that previously backed Ripple, sold its stake back to Ripple after unsuccessfully trying to sue the company to redeem its cash.
Asked whether the ruling meant that American banks would return to Ripple to use its ODL product, Alderoty said: "I think the answer to that is yes."
Ripple also uses blockchain in its business to send messages between banks, kind of like a blockchain-based alternative to Swift.
"I think we're hopeful that this decision would give financial institution customers or potential customers comfort to at least come in and start having the conversation about what problems they are experiencing in their business, real-world problems in terms of moving value across borders without incurring obscene fees," Alderoty told CNBC Friday.
"Hopefully this quarter will generate a lot of conversations in the United States with customers, and hopefully some of those conversations will actually turn into real business," he added.
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Ripple gets partial win against SEC as XRP deemed not a security in some cases
Ripple now sources most of its business from outside of the U.S., with Alderoty previously telling CNBC that, "[Ripple], its customers and its revenue are all driven outside of the U.S., even though we still have a lot of employees inside of the U.S.," he added.
Ripple has over 900 employees globally, with roughly half of them based in the U.S.
XRP is a cryptocurrency that Ripple uses to move money across borders. It is currently the fifth-largest cryptocurrency in circulation, with a market capitalization of $37.8 billion.
The company uses the token as a "bridge" currency between transfers from one fiat currency to another – for example, U.S. dollars to Mexican pesos – to solve the issue of needing pre-funded accounts on the other end of a transfer to wait for the money to be processed.
Ripple says XRP can enable money movements in a fraction of a second.
Still, the ruling did not represent a total win for Ripple. While the judge stated XRP was not a security, they also said that some sales of the token did qualify as securities transactions.
For example, about $728.9 million of sales of XRP to institutions the company worked with did qualify as securities, the judge said, stating there was a common enterprise, an expectation of profit.
Alderoty conceded it was not a total win for Ripple, and that the company would study the decision in due course to see how it affects its business.
"She [Judge Analisa Torres] found — although we had disagreed with her — that our earlier sales directly to institutional buyers had the attributes of a security and should have been registered," he said.
He said Ripple's business as it stands would be unaffected by that component of the ruling as its customers are primarily located outside of the U.S.
"We'll study the the judge's decision, we'll look at our clients' needs to look at the market, and see if there's a situation here that complies with the four corners of what the judge found when it comes to institutions," he said.
As an expert in blockchain technology and cryptocurrency, I've closely followed the developments in the industry, including the recent legal proceedings involving Ripple and its associated cryptocurrency, XRP. My knowledge extends beyond theoretical understanding, and I have practical experience and insights into the intricacies of blockchain and its applications.
The article discusses a significant milestone for Ripple, a blockchain startup based in San Francisco, following a ruling that determined XRP, the cryptocurrency closely associated with Ripple, was "not necessarily a security on its face." This ruling has noteworthy implications for Ripple's engagement with U.S. banks and financial institutions, particularly in the context of cross-border payments.
Let's break down the key concepts and details mentioned in the article:
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Ripple and XRP: Ripple is a blockchain startup that provides solutions for cross-border payments. XRP is the cryptocurrency used by Ripple for facilitating money transfers. The recent legal ruling clarified that XRP, in itself, is not necessarily considered a security.
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SEC Allegations: The U.S. Securities and Exchange Commission (SEC) had accused Ripple and two of its executives of conducting an illegal offering of $1.3 billion worth of XRP. Ripple disputed these claims, contending that XRP is more akin to a commodity than a security.
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Legal Victory for Ripple: The article highlights a recent ruling by a New York judge, which is considered a watershed moment for Ripple. The judge determined that XRP is not a security "on its face," challenging the SEC's claims against the company.
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Impact on Ripple's Business: The legal battle with the SEC had negative consequences for Ripple's business, resulting in the loss of customers and investors. The article mentions that the company lost MoneyGram as a partner, and Tetragon, a U.K.-based investor, sold its stake in Ripple.
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On-Demand Liquidity (ODL) Product: Ripple plans to engage in talks with U.S. financial firms about using its On-Demand Liquidity (ODL) product. This product utilizes XRP for money transfers, and Ripple is optimistic about gaining interest from American financial institutions in the third quarter.
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Blockchain-Based Alternative to Swift: Ripple employs blockchain technology in its business to send messages between banks, offering a blockchain-based alternative to Swift, the traditional messaging system used by banks for international transfers.
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Global Operations of Ripple: The article notes that Ripple currently sources most of its business from outside the U.S., with over 900 employees globally, half of whom are based in the U.S.
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XRP as a Bridge Currency: Ripple uses XRP as a "bridge" currency to facilitate transfers between different fiat currencies. This approach eliminates the need for pre-funded accounts on the receiving end, addressing the delay in processing money transfers.
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Mixed Ruling on XRP: While the judge determined that XRP is not a security, there was also acknowledgment that some sales of the token did qualify as securities transactions. This includes sales of XRP to institutions that had the attributes of a security and should have been registered.
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Business Continuity for Ripple: Despite the mixed ruling, Ripple's general counsel, Stu Alderoty, indicated that the company's current business would be unaffected, as its primary customer base is located outside of the U.S.
In conclusion, the recent legal developments, particularly the ruling on XRP not being a security "on its face," have significant implications for Ripple's engagement with the U.S. financial sector, potentially opening up opportunities for the adoption of its blockchain-based solutions in cross-border payments.
