Around 2.6 billion XRP, worth circa one billion dollars, has moved from a Ripple OTC Distribution wallet to unknown wallets according to an account that tracks blockchain data.

Why such huge sums have moved from what looks like Ripple’s escrow is not very clear with Ripple Labs making no statement so far.

Ripple Labs has access to 55 billion XRP, with 1 billion xrp unlocked each month. They sold about $400 million worth this year prior to these movements earlier today, with the for profit company having about five billion of unlocked XRP.

It appears they sold about half of their unlocked xrp in Over the Count (OTC) trading, but at what price and to who has not yet been revealed.

That’s while the Securities and Exchanges Commission (SEC) is considering whether Ripple is a security.

They have stated already that bitcoin and ethereum are not a security because they are decentralized. There has been no statement on Ripple.

In an interview with Jay Clayton, SEC’s chairman, the interviewer asked how long it will take for SEC to make a decision on Ripple, with Clayton only stating that there’s a lot of information they have to consider.

The Securities Act 1933 doesn’t define a security other than as an investment contract. As with most laws, it was left to a Supreme Court case to flesh out just what is an investment contract.

A security is a fluid concept with many refinements, but at a practical level it is determined by – objectively speaking – whether a reasonable man down the street thinks it is a security.

That is, whether the reasonable man or woman thinks that buying XRP is investing in an enterprise in the expectation of profits due to the work of a management team.

A better way of putting it would be whether there is trust involved. Whether there has been a promise, implicit or explicit, that funds handed over will be turned by an individual or a team through a value added method into something more desirable.

Clayton’s description was to use the analogy of a film producer saying I’ll give you tickets in return for money which will be used to make a movie. That’s a security. Now that the movie is built and you’re exchanging tickets just to go and see the movie, that’s no longer a security.

The rational basis for having requirements in the first case is because the film producer could obviously be lying, or might not bother to make the movie and runs away with the funds.

In other words, you’re handing money over for a promise and there needs to be some way to keep the entrepreneur to that promise.

With that being the fundamental principle on a logical basis, there are complications on where exactly you draw the line.

Ripple didn’t have an Initial Coin Offering (ICO). They had an airdrop, perhaps the very first one. Any bitcointalk account that wasn’t new was given for free 50,000 XRP in or around 2014.

Going by memory, that was only about 20% of the total supply, or less. The rest was kept by Ripple’s founders and Ripple Labs.

As far as the airdrop itself is concerned, obviously there was no promise and there is no investing. That matters because fundamentally securities laws are civil laws or contractual matters rather than criminal law.

In criminal law, like fraud or scamming that amounts to theft, the usual punishment is prison. In civil or contractual law, the concern is usually not as much on punishment as on redress or on putting the losing party at the same position they would have been had the contract or the promise not been breached.

Thus breaching securities laws usually means you have to turn back the money provided of course there isn’t something more serious like basically theft. Similar to Hacker Gold whereby a trusted and a somewhat prolific eth community member, Roman Mandeleil, raised millions and then vanished to only turn out he is/was partying with peoples’ money.

That might not technically be theft, but it is so close to indistinguishable that one could reasonably say criminal law should apply.

While if it is an honest good man or woman trying to deliver on their promises but just failed to register or breached some other technical rule, then the remedy usually is giving back the funds if investors want the funds back and of course complying with the rules.

As far as that 20% of Ripple supply is concerned, there’s obviously no act comparable to theft as they gave it away for free and there is no money to return as they were not given any money. Thus that airdrop, obviously, is not a security.

It has now been about 4, maybe 5, years since the airdrop and the total amount of XRP is still no where near being fully in circulating supply.

The current circulating supply is 40 billion out of 100 billion. That means Ripple Labs and/or its founders have sold to the public 20 billion XRP and have the ability to sell another 60 billion or so.

They made no promise during the airdrop as the network was already built, but afterwards they did sort of make promises in building xRapid and in trying to get banks to use XRP for international remittance so as to increase its utility.

Thus the “efforts of others” component is here, with some perhaps buying in the hope that such efforts do pay off and in a big picture view they are primarily buying from Ripple Labs.

A better way to look at it would be whether it is reasonable to require Ripple Labs to reveal how much XRP they have sold and what exactly they are using those funds for.

It is reasonable to do so because they still have more than half of the supply, thus have a huge amount of influence in a way that is not comparable to btc or eth.

And that it is reasonable is shown by Ripple Labs voluntarily doing so, but to a very, very limited extent as they only say how much they’ve sold.

There is no proper quarterly report, a proper detailing of what they spending funds on, what’s the burn rate and so on.

Another way to look at it is what happens after Ripple sold all of the 55 billion. For ethereum or bitcoin, anyone can be a developer and anyone can propose code with developers being distinct from miners who produce the new supply.

For XRP, it is mainly if not solely Ripple Labs that proposes or can propose code while having more than half of the supply and while having a design whereby no one else can create any more supply.

So, regardless of what SEC says, would a reasonable man say that Ripple is a security considering that the same would probably apply to all that engage in the airdrop model?

If we are to, at the very least, try to be objective, then the answer is necessarily difficult because it is not a plain model of you give me money in the promise of something.

Rather than all the funds being raised before hand, with all then waiting for delivery, the airdrop model is continues whereby one has the ability to evaluate by the second and throughout whether to invest or exit the investment.

The question there is whether that creates a continuous promise until what is effectively an 80% ICO is over.

Things like engaging in cryptic tweets over three days to lead “investors” into thinking Ripple Labs has some big announcement, and thus their product, xrp, could be worth more. To then only reveal the insinuations were naked by announcing some conference.

Or things like paying inviting Bill Clinton to give a non speech so as to hype their product, xrp, which effectively is the business model of this for profit company until the xrp runs out because they have no revenue by themselves and yet didn’t choose to be a non-profit.

Thus should they be accountable, is the question. Should they be “made” to act “reasonably” and in a “proper” manner?

Considering the stupendous amount of funds they control, and thus the stupendous influence on price, and considering their engagement in effectively misleading the public by insinuating a silly conference is a big deal, or by bribing inviting some former president, it is easy to say yes.

Just as it is easy to say but, the securities laws are very outdated and can’t possibly apply in the same form to a new digital age.

There are some rules which are good, desirable, and should continue, but there are some rules which were designed for a paper age, thus do not take into account certain investors protections that come naturally with code or crypto in a way that they can’t possibly with paper.

So there needs to be a new or an adapted regulatory framework which takes into account the differences.

That new regulatory framework is effectively currently being established, which is why SEC is taking their time and perhaps rightly so.

More than whether XRP is a security stands the question of whether it should be and more than that is the question of whether the same old rules should apply or whether some of them are irrelevant at least in certain contexts or at least for certain aspects.

Making it quite a complicated matter and not really one for SEC save for their own say, but one for the entire people of the land of the free and the land of the brave as a new regulatory framework, somewhat organically, is created based on that ultimate question: what does the reasonable man or woman down the street think?

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