With many token issuers, they tend to take a plea deal when it comes to the Securities and Exchange Commission, Airfox and Paragon are good examples but there are other ways to go around it for cryptocurrencies.

When it comes to Ripple, they play the long game with the SEC. By quickly pushing their digital currencies to full functionality, crypto firms like Ripple will be able to create enough “facts on the ground” to escape a securities classification altogether. Ripple is a huge company now though, almost everyone will have heard of the firm in the crypto space by now but even so, Ripple is very swiftly becoming the kind of prey that is almost too much trouble to handle.

Is XRP Decentralised Enough for the SEC?

The idea of decentralising a whole entity out of being a security was noted at the Yahoo Finance summit earlier in the year when William Hinman of the SEC made a public statement in which he classed Ethereum and Bitcoin as securities “would seem to add little value.” In addition to this, “over time there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required.” Hinman’s speech is the closest we’ll get to regulatory clarity in today’s world.

The statement indicates that there are numerous cryptocurrencies which can escape a securities classification by becoming sufficiently developed and distributed that they are no longer lean on the main effort. In a report for the Lowell Milken Institute, James Park refers to this as the Hinman Paradox:

“For a utility token to be distributed freely without regulation by the securities laws, it must be functional. But many utility tokens are only functional if they are distributed widely enough so that a de-centralized system arises.”

According to Park, there will be very few Initial Coin Offerings which will ever be sufficiently decentralised to escape the ‘Hinman paradox’. If you base on what is publicly known of the SEC’s enforcement strategy, the native token of Ripple, XRP is one of the best positioned to become decentralised enough to pass the threshold.

As reported by Crypto Briefing:

“While regulators like Hinman and Valerie Szczepanik have entertained the possibility of utility tokens that are not securities, the vast majority of ERC-20’s definitely are.”

What are your thoughts? Let us know what you think down below in the comments!