Former chairman of the Commodity Futures Trading Commission (CFTC), Chris Giancarlo, has argued that Ripple’s XRP, the fourth-largest cryptocurrency by market cap, is not a security, but a commodity.
Giancarlo, popularly referred to as “Crypto Dad,” made his argument in a paper dubbed Cryptocurrencies and U.S. Securities Laws: Beyond Bitcoin and Ether on why XRP does not qualify as a security.
The paper which was co-written by commodities lawyer Conrad Bahlke of New York law firm, Willkie Farr and Gallagher LLP critically examined the criteria to follow as postulated by the Security and Exchange Commission (SEC) in 1946 in determining the nature of an asset.
When Giancarlo was CFTC chairman, he established essential criteria that made popular cryptocurrencies Bitcoin (BTC) and Ethereum (ETH) being classified as commodities.
After the declaration of BTC and ETH as commodities by CFTC, it did not take long before the SEC followed suit and made the same pronouncement that both assets do not fall under its regulatory purview and were subsequently declared commodities.
Why XRP isn’t a security
Giancarlo, who has shares at Ripple, wants XRP to be declared as a commodity. He argued that XRP is like BTC and ETH, which supports distributed ledger that uses cryptography to store and transfer assets.
Although XRP ledger does not support mining to validate transactions as adopted by Bitcoin’s blockchain protocol, the cryptocurrency has a finite supply of 100 billion units, which was created during its inception in 2011 and 2012.
Miners on the Bitcoin blockchain are rewarded 6.25 BTC for successfully confirming a block, and the mined tokens are sold periodically.
On the other hand, out of the 100 billion XRP created at the time of inception, Ripple currently holds 55% of the XRP in escrow, which is sold periodically to fund the network’s operations.
Giancarlo noted that the method adopted helps Ripple to better stick to its intended purpose of offering liquidity and does not differ from Bitcoin miners selling mined tokens.
This implies that the XRP should not be set apart from BTC and ETH from a legal and regulatory perspective, he added.
Meanwhile, Coinfomania reported last year that Ripple filed a motion to dismiss the lawsuit that claimed it violated security laws through the sale of its XRP tokens.