On Monday (14 November 2022), Charles Hoskinson, Co-Founder and CEO of Input Output Global (aka “IOG”), the blockchain technology firm behind Cardano’s R&D, talked about why he believes the U.S. SEC decided to allege that $XRP is a security instead of $ETH.
on 14 June 2018, William Hinman, the director of the Division of Corporation Finance at the U.S. Securities and Exchange Commission (“SEC”), made a speech at Yahoo Finance’s “All Markets Summit: Crypto” one-day event in San Francisco, California. The speech was about how the SEC plans to use the “Howey Test” to determine whether a digital asset should be considered a security or not. The only two cryptocurrencies Hinman mentioned by name were Bitcoin (BTC) and Ether (ETH), neither of which he said should be considered as securities:
“And so, when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise. The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value...
“And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.“
As you may remember, on 22 December 2020, the SEC announced that it had “filed an action against Ripple Labs Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.”
Last Sunday (13 November 2022), American lawyer John Deaton, the owner of the Deaton Law Firm (which is based in East Providence, Rhode Island), claimed that lack of regulatory clarity in the U.S. has “has driven business activity offshore increasing the chances for fraud and corruption.”
Ask yourself why was @GaryGensler meeting with SBF and NOT @brian_armstrong or @jespow? Even giving Gensler the benefit of the doubt, why SBF and not the largest exchange in the U.S. – which has a broker dealer license?
Then, after Deaton said in a subsequent tweet that Charles Hoskinson “should be in there talking to regulators way before SBF”, the IOG CEO said:
I literally spoke before congress this year. I've engaged with regulators extensively. What doesn't help is making an entire community believe that Joe Lubin bribed the SEC to go after Ripple. This madness damages any hope of a healthy relationship
Deaton went on to say that he found it strange that Hinman had given “a regulatory free pass” to $ETH but not to $XRP:
A free pass for ethereum has zero material impact on the ripple litigation. Especially given that your argument is that it would be a security, but they were bribed to not make it one. So what both ethereum and xrp are securities? Jesus Christ man.
Next, Ripple CTO David Schwartz jumped into the conversation, which led Hoskinson to explain why he thinks the SEC decided not to target $ETH:
They adopted the position because by the time they could intervene, ethereum had a huge ecosystem of dapps, many VCs, tons of billionaires with political capital, and ran proof of work, which bitcoin got a pass on
Hoskinson then explained where in his opinion Ripple had made a mistake:
I hope you're just putting that forward as a description of what happened and not defending it as a rational course of action.
Hoskinson went on to say that he understood this is a frustrating situation for coins/tokens other than $BTC and $ETH:
There is some magic line that the SEC has drawn about what is sufficiently decentralized. Apparently, Ethereum and Bitcoin meet it, and in their mind XRP doesn't. I agree it's a fucked up situation and should be changed. I went to Washington to push for that
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The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.