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Lawson Baker: XRP is a security. Ripple is the issuer.


flanman
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I respect his opinion but........technically:

https://www.investopedia.com/terms/s/security.asp

What is a 'Security'

A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option.

 

BREAKING DOWN 'Security'

Securities can be broadly categorized into two distinct types: equities and debts.

An equity security represents ownership interest held by shareholders in an entity (a company, partnership or trust), realized in the form of shares of capital stock, which includes shares of both common and preferred stock. Holders of equity securities are typically not entitled to regular payments (though equity securities often do pay out dividends), but they are able to profit from capital gains when they sell the securities (assuming they've increased in value, naturally). Equity securities do entitle the holder to some control of the company on a pro rata basis, via voting rights. In the case of bankruptcy, they share only in residual interest after all obligations have been paid out to creditors.

A debt security represents money that is borrowed and must be repaid, with terms that stipulates the size of the loan, interest rate and maturity or renewal date. Debt securities, which include government and corporate bonds, certificates of deposit (CDs) and collateralized securities (such as CDOs and CMOs), generally entitle their holder to the regular payment of interest and repayment of principal (regardless of the issuer's performance), along with any other stipulated contractual rights (which do not include voting rights). They are typically issued for a fixed term, at the end of which they can be redeemed by the issuer. Debt securities can be secured (backed by collateral) or unsecured, and, if unsecured, may be contractually prioritized over other unsecured, subordinated debt in the case of a bankruptcy. 

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1 hour ago, Winteriscomming said:

I respect his opinion but........technically:

https://www.investopedia.com/terms/s/security.asp

What is a 'Security'

A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option.

 

BREAKING DOWN 'Security'

Securities can be broadly categorized into two distinct types: equities and debts.

An equity security represents ownership interest held by shareholders in an entity (a company, partnership or trust), realized in the form of shares of capital stock, which includes shares of both common and preferred stock. Holders of equity securities are typically not entitled to regular payments (though equity securities often do pay out dividends), but they are able to profit from capital gains when they sell the securities (assuming they've increased in value, naturally). Equity securities do entitle the holder to some control of the company on a pro rata basis, via voting rights. In the case of bankruptcy, they share only in residual interest after all obligations have been paid out to creditors.

A debt security represents money that is borrowed and must be repaid, with terms that stipulates the size of the loan, interest rate and maturity or renewal date. Debt securities, which include government and corporate bonds, certificates of deposit (CDs) and collateralized securities (such as CDOs and CMOs), generally entitle their holder to the regular payment of interest and repayment of principal (regardless of the issuer's performance), along with any other stipulated contractual rights (which do not include voting rights). They are typically issued for a fixed term, at the end of which they can be redeemed by the issuer. Debt securities can be secured (backed by collateral) or unsecured, and, if unsecured, may be contractually prioritized over other unsecured, subordinated debt in the case of a bankruptcy. 

Yes, the endless debate around it is still going on because:

1. Too many people are lacking the reading comprehension necessary to be able to read these definitions and conclude that XRP is not a security

2. Or even worse, the belief that regulators are so corrupt or incompetent at their job that they could deem XRP a security despite not fitting the definition.

I wouldn't rule out (2) especially since US regulators at least, have it in their heads that Bitcoin maximalists are blockchain experts and that mining is what sets "true cryptocurrencies" apart from the rest. I don't know how it's even legal to be this misinformed about an asset class and still regulate it, but there you have it.

 

Edited by corak
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31 minutes ago, corak said:

Yes, the endless debate around it is still going on because:

we are in the limbo for now......but IMO they wont change the actual Security Law because it could cause mayor changes in the stock market.

IMO that is why the SEC is still trying to figure this out.

Edited by Winteriscomming
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41 minutes ago, corak said:

1. Too many people are lacking the reading comprehension necessary to be able to read these definitions and conclude that XRP is not a security

but........imagine for a second that they say that XRP is a security.....just imagine if we could use this as a plan B:

1. Ripple and (XRP- Ripple Labs) will have to adapt to the security standard?

2. XRP could be listed as a legal security in any broker?

3.  What about (Equity securities do entitle the holder to some control of the company (Ripple labs)

4. How the Stock market will evaluate Ripple or Ripple labs?

5. it will generate more demand in no-crypto space?

I Know that this is a very complex scenario but it could be.

 

 

 

Edited by Winteriscomming
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1 minute ago, Winteriscomming said:

but........imagine for a second that they say that XRP is a security.....just imagine if we could use this as a plan B:

1. Ripple and (XRP- Ripple Labs) will have to adapt to the security standard?

2. XRP could be listed as a legal security in any broker?

3.  What about (Equity securities do entitle the holder to some control of the company (Ripple labs)

4. How the Stock market will evaluate Ripple or Ripple labs?

I Know that this is a very complex scenario but it could be.

 

 

 

Yes but it implies that anyone not an "accredited investor", which is the vast majority of retail crypto traders/investors, will not be legally allowed to participate. That's because the supposed issuer of XRP in this case, is not a publicly traded company.

Sure maybe MMs will easily adapt, but the liquidity XRP currently has is based on retail interest, and that will go to almost zero overnight.

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Well he's backed off a bit today, and now calls XRP in the "middle-right" of the securities spectrum.

 

I've spent far too much time looking into this, and my biggest concern is the amount of people here using XRP like a security. Earlier this week we found out that the XRP community has no idea what "trust lines" are. I saw members here with 1000's of posts worried that their XRP were going to be stolen if they opened a trust line for an IOU. 

Rather than using XRP, most people are buying it so it can sit in an exchange or a Nano Ledger, and then waiting for news that Ripple the company is going to make it valuable. I've been guilty of that myself the last year. And I believe the SEC will look at that specific relationship as a security. If that's the most common relationship people have with XRP, then we're in trouble.

If there were more non-Ripple projects based on the XRPL, I believe that would help Ripple's case. But hey, I'm not an expert. Ripple employs plenty of securities lawyers. Ripple will take care of everything, right? All I have to do is sit back and profit solely from the efforts of Ripple.

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9 minutes ago, flanman said:

Well he's backed off a bit today, and now calls XRP in the "middle-right" of the securities spectrum.

 

I've spent far too much time looking into this, and my biggest concern is the amount of people here using XRP like a security. Earlier this week we found out that the XRP community has no idea what "trust lines" are. I saw members here with 1000's of posts worried that their XRP were going to be stolen if they opened a trust line for an IOU. 

Rather than using XRP, most people are buying it so it can sit in an exchange or a Nano Ledger, and then waiting for news that Ripple the company is going to make it valuable. I've been guilty of that myself the last year. And I believe the SEC will look at that specific relationship as a security. If that's the most common relationship people have with XRP, then we're in trouble.

If there were more non-Ripple projects based on the XRPL, I believe that would help Ripple's case. But hey, I'm not an expert. Ripple employs plenty of securities lawyers. Ripple will take care of everything, right? All I have to do is sit back and profit solely from the efforts of Ripple.

you do have a point there, but I want to point out speculators exist for many types of markets, not just securities!

Anywhere there's a lot of trade volume and some price movement you will find them. FX trading is pretty big, as is commodities trading. There are even people who speculate on real estate (just over longer periods, typically). Why shouldn't cryptos draw a lot of speculative interest? It really makes sense that they do! That doesn't make them securities. 

People who had oil reservoirs were sitting on them and waiting for oil refineries and pipelines to be set up so they can become rich. The situation with XRP is similar. I've experimented with the tech back in the day, traded on RCL for a while, and I mostly understand how it works. But it is clear the network is not meant for "personal" use. Maybe with smart contracts they could set up a real DEX and make it more interesting, since then it will really remove the issuer risk associated with IOUs. ILP based XRP micropayments are a cool idea but we are not quite there yet. If you want to just HODL, a ledger does the job. If you want to trade, most large exchanges have better liquidity than the XRPL pairs do.

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3 minutes ago, corak said:

But it is clear the network is not meant for "personal" use. Maybe with smart contracts they could set up a real DEX and make it more interesting, since then it will really remove the issuer risk associated with IOUs. ILP based XRP micropayments are a cool idea but we are not quite there yet. 

Perhaps the SEC is waiting to see what happens with future developments. 

If they decide to regulate XRP as a security in order to protect me, after letting me speculate for half a decade, I'd say they're doing the opposite.

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Jay Clayton (SEC Chief) today on ICO's

"Just because it's a security today doesn't mean it'll be a security tomorrow, and vice-versa."

https://www.coindesk.com/sec-chief-not-icos-bad/

This has me so relieved (and I'm sure a lot of ETH holders as well). Even if XRP were in danger of being a security, Ripple could take steps to avoid that classification. It's likely they're already doing this.

I'm praying the SEC demands that Ripple hold a minority share of XRP, forcing them to airdrop all holdings to us until they have just 49%. :D

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