For Ripple, Christmas in 2020 just past did not seem to have a good time. On December 22, the U.S. Securities and Exchange Commission determined that Ripple was a “securities,” and therefore filed a lawsuit in the Federal District Court of Manhattan, New York, accusing Ripple and its two executives, Chris Larsen and CEO Brad Garlinghouse, of selling it through 2013. “Unregistered Digital Asset Securities” raised more than $1.3 billion in funds.
The US Securities and Exchange Commission believes that Ripple violated the federal securities laws when selling Ripple, by distributing billions of Ripple in exchange for non-cash consideration (such as labor and market-making services). In the process, Chris Larsen and Brad Garlinghouse not only organized and promoted Ripple’s Ripple sales, but also conducted individual sales of Ripple, involving an amount of up to $600 million. However, the US Securities and Exchange Commission has not sued another important founder of Ripple, Jed McCaleb (Jed McCaleb), because he was forced to leave Ripple “coincidentally” in 2013.
The history of Ripple
Speaking of Jed Mike Calleber, I have to say that he played a very important role in the development history of Ripple. As a very low-key “great-level” programmer in the cryptocurrency industry born in Fayetteville, USA, Jed Mike Calleber is compared to the well-known “V-God” Vitalik Buterin and BM in the community For others, it can exist in obscurity.
I don’t know if you still remember that Jed Mike Calleber was once known as the “father of eDonkey.” Twenty years ago, Jed Mike Calleber, who was only 25 years old, wrote the eDonkey (eDonkey) software in only half a year. Users can search for a large number of excellent resources on this network, and can also download from the Internet. Download the required files at multiple points at the same time to achieve the best download speed. You can also quickly upload and share files to achieve the best upload speed and resource publishing efficiency. There is a unique identity mark between the clients, and there is no single central server on the server side. , Anyone can build and run their own server, and the servers can communicate with each other.
Some people can’t help but sigh, isn’t this the prototype of the “decentralized network” in the encryption industry today? Regrettably, however, Jed Mike Calleber was eventually sued for copyright issues and reluctantly shut down the eDonkey service in 2006. After suffering this huge blow, Jed Mike Calleber dormant for four years. In 2010, when he was in a depressed mood, he accidentally saw the Bitcoin white paper on the BitcoinTalk forum, and suddenly resonated with “Satoshi Nakamoto” because his original intention of creating eDonkey was to use decentralized technology to solve real problems. The Bitcoin white paper undoubtedly opened the door to this new world for him.
Therefore, Jed Mike Calleber created the most famous cryptocurrency exchange Mt.Gox in only half a year, providing users with fiat currency trading services from Bitcoin to U.S. dollars. However, Jed Mike Calleber changed hands after Mt.Gox’s great success, because he felt that “transactions are just a small problem in the crypto industry, hoping to challenge more interesting things.” As Jed Mike Calleber discovered that Bitcoin is increasingly playing the role of a “store of value”, he decided in 2011 to create a new Internet transaction protocol-Ripple Protocol, which allows people to use any one Payment in a legal currency, and created its own digital currency in a similar way to Bitcoin: Ripple (XRP). Ripple hopes that Ripple can become a bridge between different legal currency transactions. For example, Americans can directly use it in European merchants. XRP makes payments in U.S. dollars, and these European merchants can directly receive Euros through XRP.
Since then, in order to allow Ripple to develop better, Jed Mike Calleber cordially invited Chris Larsen, a leading figure in the lending finance industry, to be the co-founder, but in the development process after Ripple, Jed Mike Calleber and Chris Larsen He often had major disagreements on many issues, and he gradually felt that Chris Larsen was not a person worthy of choosing to work with and talking too much. In the end, in December 2013, Jed Mike Caleb was voted out unanimously because of the huge difference between the management philosophy of Ripple and Ripple’s management, which also laid the groundwork for Ripple’s future heavy regulatory damage.
Since Chris Larsen took over Ripple, his personal assets have grown rapidly. He once said that his only purpose is to make money. Sure enough, by 2018, Chris Larsen has been among the top five richest people in the world, and briefly surpassed Facebook founder Mark Zuckerberg; by 2020, Chris Larsen will be on the Forbes 400 richest American Ranking 319th. However, this “abnormal” wealth growth quickly attracted the attention of regulators.
Ripple is considered a “centralized” institution by regulation
The US Securities and Exchange Commission has previously stated clearly that the “decentralized” nature of Bitcoin and Ethereum can characterize them as cryptocurrencies, not securities. But on the issue of Ripple, the US Securities and Exchange Commission’s attitude is very different. Judging from this prosecution, the regulators have clearly regarded Ripple as a “centralized” institution, and therefore will regard it as “Securities”.
Stephanie Avakian, the head of the law enforcement department of the US Securities and Exchange Commission, said that the reason for prosecuting Ripple and its two executives is because they must fully disclose long-term protection measures to potential buyers. It is essential for a sound public relations market system, but Ripple has not done so. According to the regulations of the US Securities and Exchange Commission, individuals and crypto companies must register their issued “securities” products with regulatory agencies or apply for exemptions. Not only that, the US Securities and Exchange Commission also emphasized that Brad Garlinghouse and Christian Larsen are important Ripple “securities” holders. These two people conducted Ripple “personal sales” of up to $600 million, but they did not sell to U.S. securities. The Exchange Commission applied to register for the Ripple sale and offer. At the same time, the two individuals were not granted a registration exemption, thus violating the registration requirements of the Federal Securities Law.
Ripple is facing a “delisting tide”
As soon as the U.S. Securities and Exchange Commission sued Ripple, Chris Larsen and Brad Garlinghouse, the price of Ripple dropped rapidly by 17%, and the decline has been as high as 48% in seven days! Ripple, once one of the “Big Three” of cryptocurrencies, has now lost more than 10 billion U.S. dollars in market value, and its market position, which has always been ranked third, has also been replaced by the stable currency Tether. And the cryptocurrency exchanges that are in regulatory risk also seem to be a little panicked. Take Binance as an example. Ripple, which accounts for as much as 40.41%, is processed on the exchange. At present, multinational regulators have included Binance under the “scope”, forcing it to abandon its operations in the United States and South Korea. The impact has further expanded, and it is likely to be the biggest victim of this storm. In order to avoid regulatory risks, some other cryptocurrency exchanges have decided to take the simplest and most effective response: to remove Ripple.
1. The Hong Kong-based digital currency trading platform OSL took the lead in delisting Ripple the day after the announcement of the prosecution;
2. The two exchanges, CrossTower and Beaxy, followed suit and made the same decision. As for when they will be relaunched, it is currently unknown;
3. Coinbase, a regulated cryptocurrency exchange that is seeking regulatory approval for an IPO, announced that it plans to suspend XRP trading at 02:00 on January 20, 2021 Beijing time. Coinbase said that starting trading at 6:20 on December 29th Beijing time will enter limit orders, and will completely suspend XRP trading at 2:00 on the 20th Beijing time. Suspension of transactions will not affect customers’ access to XRP wallets, and XRP will continue to be supported on Coinbase Custody and Coinbase Wallet.
4. Bitstamp, one of the largest currency trading platforms in Europe, also announced on Christmas Day that it would suspend Ripple trading, becoming the first major mainstream exchange that officially did not support Ripple.
5. Crypto.com officially confirmed that Ripple will be delisted from its U.S. market app at 10 a.m. UTC on January 19, 2021, and trading will be suspended. U.S. customers will not be able to deposit XRP in the Crypto.com app. But withdrawals will not be affected. Crypto.com reminds users that it is recommended to transfer Ripple to their own crypto wallet before 10 am UTC on December 29, 2020.
According to statistics, before the U.S. Securities and Exchange Commission sued Ripple, 192 cryptocurrencies went online to trade Ripple, but within 20 hours after the news was exposed, this number was reduced to 138, which means that there are at least 54 exchanges. Ripple trading has been stopped and the Ripple trading pair has been deleted. This wave of “Ripple delisting” can’t help but worry the crypto community.
In fact, it is not difficult to delist a cryptocurrency, but exchanges must consider from a business perspective and a legal perspective. What kind of precedent might this set in the crypto industry? If a cryptocurrency is dropped just because the regulator accuses it of being a security, what will happen next time? Does the cryptocurrency exchange give the US Securities and Exchange Commission a right-as long as a certain cryptocurrency is accused of being a security, it will be delisted? If this is true, it may not be a good thing for exchange customers.
No escape from lawsuits, alarm bells ringing
From the current point of view, the US Securities and Exchange Commission’s prosecution has become an established fact. If the court decides that Ripple is a security, then the cryptocurrency exchange is likely to have to face the risk of token delisting. If Ripple is to be listed, then crypto Currency exchanges must obtain “stock exchange” qualifications. The attitude of the regulator has been very clear, so cryptocurrency exchanges must pay attention to such regulatory risks, especially those that “require” regulators. Now Ripple, the fourth largest by market value, can be sued, so in addition to Bitcoin and Ethereum, other cryptocurrencies in the market may be recognized as “securities” by regulators.
On the other hand, regulatory agencies such as the US Securities and Exchange Commission may not directly and explicitly require cryptocurrency exchanges to delist Ripple, but they may tell investors that there are risk factors for those cryptocurrency exchanges that do not delist Ripple. , Because they did not properly explain to investors how to make Ripple and other similar cryptocurrencies online trading.
Then, after understanding the practices of regulatory agencies, how should we deal with these potential regulatory risks? Generally speaking, when encountering the problem of judging whether a cryptocurrency will be recognized as a “securities”, the transparency and consistency of the project information disclosed to the token holders may be beneficial to the cryptocurrency founding team and provide Consistent project information disclosure is actually very convenient for open source encryption projects. The easier it is to obtain information disclosed by cryptocurrency projects, the easier it is to prove that tokens are not “securities.” This is because the main purpose of the federal securities laws is to protect investors by promoting full disclosure of information required for investment decisions.
Although some cryptocurrency exchanges, market makers and funds have begun to delist Ripple or withdraw from the use of Ripple positions and related transactions, this may not be a simple “black and white problem” for large top exchanges. Because regulatory risks are likely to make them “in trouble.” In fact, the leading cryptocurrency exchanges can, based on the previous analysis that Ripple is not a security, temporarily not delist Ripple, and hope that the court will make a ruling that Ripple is not a security. Alternatively, cryptocurrency exchanges can also take “remedial” measures, such as restricting Americans from conducting Ripple wallet transactions, and then considering whether to delist or not to delist based on actual conditions. If the compliance burden is too much, then these cryptocurrency exchanges will eventually delist Ripple based on “user and regulatory feedback” choices.
