Ripple Anticipates U.S. Banks Will Embrace XRP Cryptocurrency for Cross-Border Transactions After Partial Victory in SEC Lawsuit
Blockchain startup Ripple is optimistic that U.S. banks and other financial institutions will begin showing interest in adopting its XRP cryptocurrency for cross-border payments. This confidence follows a significant legal win for Ripple in its ongoing battle against the U.S. Securities and Exchange Commission (SEC).
According to Stu Alderoty, General Counsel for Ripple, a judge ruled that XRP is not necessarily a cryptocurrency, a decision that carries significant implications for the digital asset industry. This ruling could potentially pave the way for Ripple to engage in discussions with American banks regarding the adoption of its On-Demand Liquidity (ODL) product, which utilizes XRP for money transfers. Alderoty further revealed that Ripple plans to initiate talks with financial firms in the third quarter of this year.
The ruling delivered by a New York judge represents a milestone for Ripple by stating that XRP itself is “not necessarily a security on its face.” This decision contradicts claims made by the SEC against Ripple. Over the past three years, Ripple has been battling against allegations that it conducted an illegal offering of $1.3 billion worth of XRP. Ripple has consistently disputed these claims, asserting that XRP should be classified as a commodity rather than a security.
However, while the ruling was favorable in one aspect, it was not a complete victory for Ripple. The judge also determined that the sales of XRP by Ripple to institutional buyers do fall under the classification of unregistered securities sales. This ruling has had negative consequences for Ripple’s business, leading to the loss of customers and investors. Notably, MoneyGram, a major U.S. money transfer company, terminated its partnership with Ripple in March 2021. Additionally, U.K.-based investor Tetragon, which previously supported Ripple, sold its stake back to the company after failing to sue Ripple successfully.
Despite this setback, Ripple remains hopeful that American banks will return to utilize its ODL product for cross-border transactions. Alderoty stated, “I think the answer to that is yes.” He added that Ripple’s blockchain-based messaging system, serving as an alternative to SWIFT, could also attract financial institutions seeking cost-effective solutions for transferring value across borders.
With most of Ripple’s business currently originating from outside the U.S., Alderoty expressed his expectations for increased conversations with American customers about their real-world challenges in cross-border transactions. While Ripple employs approximately 750 individuals globally, around half of its workforce is based in the United States.
XRP is a cryptocurrency utilized by Ripple to facilitate international money transfers. It is presently the fifth-largest cryptocurrency in circulation, with a market capitalization of $37.8 billion. By leveraging XRP as a “bridge” currency, Ripple addresses the issue of pre-funded accounts required at the recipient’s end for transfer processing, enabling near-instantaneous money movements between fiat currencies.
Notwithstanding the favorable ruling, the judge’s decision did not completely favor Ripple. Although XRP was deemed not to be a security, certain sales of the token were classified as securities transactions. For instance, the judge confirmed that approximately $728.9 million of XRP sales to institutional buyers did qualify as securities transactions due to the presence of a common enterprise and an expectation of profit.
Alderoty acknowledged that Ripple did not achieve an outright victory and announced the company’s intention to review the decision thoroughly to assess its impact. He stated, “We’ll study 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.”
Despite the mixed outcome, the recent ruling is expected to have far-reaching ramifications for Ripple and the wider digital asset industry as it strives to establish XRP as a viable option for cross-border transactions, providing faster and more cost-effective solutions for financial institutions.