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Testimony of Gary Gensler Before the United States Senate Committee on Banking, Housing, and Urban Affairs Sept. 14, 2021 Washington, D.C.


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20 minutes ago, NightJanitor said:

It's like saying "your totally functional iPhone has a SD card slot where you can add more memory in the future" or "your desktop has extra slots where you can add additional components or upgrade the components already in it, as new technology develops"

Rubbish. Ripple have been using the funds from sales to build out and market ripplenet, bring in customers, develop ODL, subsidize partners like moneygram, sponsor projects like coil, xpring etc etc. (And even pay lawyers to defend their case against the SEC as well as lobby congress). All this impacts the value of xrp.

Just because the network was built first (unlike ethereum etc), doesn't change anything. The SEC see this as a violation of securities laws and they are just doing their job. Hopefully they'll lose this one, and clamp down on most of the rest.

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2 minutes ago, jbjnr said:

Just because the network was built first (unlike ethereum etc), doesn't change anything. The SEC see this as a violation of securities laws and they are just doing their job.

Errr I think therein lies the issue with a court case, considering they collectively agreed that ether was not a security despite the facts that show it acted like a security.

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1 hour ago, jbjnr said:

Just because the network was built first (unlike ethereum etc), doesn't change anything. The SEC see this as a violation of securities laws and they are just doing their job.

That's not what they said to Gasparino.  They said "not built out yet" - sorry, it was built and functional, as you admit. 

Taking your stance to the absurd extreme, the only way anyone escapes arbitrary/capricious SEC enforcement and is allowed to continue to work on anything they invent is to pull a Satoshi and abandon your project and cuckoo-bird it...

Judge Netburn picked up on this very "neverending litigation" aspect in the last call, when the SEC tried it, on her... :)

That's the heart of the anti-competitive/innovation-crushing argument against SEC's refusals to provide crypto clarity - and yet another point for the genius of Satoshi in seeing exactly what government bureaucracy would try to do, here...  But BTC is "built-out"?  I dunno, I seem to remember a lot of the early folks - just not the "inventor" - continuing to make changes to it - often very contentious ones, since there wasn't a mechanism built into it to make that easier.  And some of the people still involved in developing it are working on even more changes, right now - so... when is BTC "built out"?  (Do we need Daddy Gensler or Aunt Liz to decide for us?)

Same exact Q for any other project.  Ergo, where's the rules - and go away with this "check with us before you go take the car, even though you're an adult, and it's yours, and this is America"...

We'll see, but... the SEC argument does not fly.  (It's funny that a cuckoo-bird saw it coming!)

:)

Edited by NightJanitor
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12 minutes ago, NightJanitor said:

That's not what they said to Gasparino.  They said "not built out yet" - sorry, it was built and functional, as you admit. 

The xrp ledger code was up and running - it was built out. But the rest of ripplenet was not.  Ripple spent years developing/testing ODL etc as a layer within ripplenet using funds from xrp sales to build out that part of the network. I wasn't very clear in my distinction between the two.

Without ripplenet, xrp doesn't have much utility and so the SEC are using everything ripple are doing as the investment in the network (or development of utility). 

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6 minutes ago, jbjnr said:

Ripple spent years developing/testing ODL etc as a layer within ripplenet using funds from xrp sales to build out that part of the network.

Maybe they used a dollar or two from this as well? Do you have the breakdown?

https://techcrunch.com/2019/12/20/ripple-raises-200-million-to-improve-global-payments/

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18 minutes ago, jbjnr said:

The xrp ledger code was up and running - it was built out. But the rest of ripplenet was not.  Ripple spent years developing/testing ODL etc as a layer within ripplenet using funds from xrp sales to build out that part of the network. I wasn't very clear in my distinction between the two.

Without ripplenet, xrp doesn't have much utility and so the SEC are using everything ripple are doing as the investment in the network (or development of utility). 

You're still not being very clear in your distinction between the two.  Ripplenet is a product of Ripple (the company) which *can* use XRP (and the fully functional, as you admit, XRP ledger) to do global settlement.  Ripple (the company) owns it - but they don't own or control the XRP Ledger.  Are you trying to tell me the Ethereum Foundation doesn't support its own ecosystem?  They have a conference for people developing using Ether like once a week.  (They invest in many of same.)

If you want to argue utility and availablity of the XRP Ledger to be used by anyone, there are about 20,000 people who'd just love to have Mr. Deaton represent their interests in this case - since XRP holders and XRPL users aren't represented, even though their asset and the network they use is part of what the SEC is attacking, here.  (The 20,000 people figure is only those who have *signed up* with Mr. Deaton - who knows how many more people or companies actually use XRPL.)

For some odd reason, the SEC has been fighting that tooth and nail, though - and claiming XRPL has "no utility" - meanwhile, the Judge has had to spend God-only-knows how much money upgrading her phone system so that thousands of people (99.99% of whom aren't working at Ripple) can call in and listen to every SEC v Ripple call...

Curious, isn't it?

Edited by NightJanitor
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10 minutes ago, jbjnr said:

The xrp ledger code was up and running - it was built out. But the rest of ripplenet was not.  Ripple spent years developing/testing ODL etc as a layer within ripplenet using funds from xrp sales to build out that part of the network. I wasn't very clear in my distinction between the two.

Without ripplenet, xrp doesn't have much utility and so the SEC are using everything ripple are doing as the investment in the network (or development of utility). 

You've identified the main point of contention. I've expanded my understanding of what US law considers to be a security considerably lately. I no longer interpret it so strictly as an explicit agreement between investors and the company being invested in.

The XRPL is like TCP/IP. It's not much good without the various web technologies built on top of it. On the otherhand Facebook isn't much good without TCP/IP. The XRPL is like that base layer - it was functional from the start in the sense that anyone could generate a wallet and use it and it worked. I, personally, very much enjoyed using the ledger in the early days. But it's too simplistic to fit into our modern financial system with all the regulations.

Just like today's social media and streaming services couldn't run on the 1980s internet, Ripple has been trying to build those higher layers of products and services that can interface with the modern banking system. It sold XRP to do so.

Ripple is going to argue that XRP is the utility token of the XRPL and it sold it much in the same way that a gold mining company might sell its gold in order to fund the next generation of mining equipment that can go deeper and faster or whatever to mine more gold. The SEC is going to argue that Ripple wasn't just selling XRP in and of itself but the promise that Ripple's next generation products would increase the value of XRP, much the same as if the mining company was advertising that it's new mining techniques would reignite gold's popularity and usher in a new golden age for gold.

If the SEC can prove that Ripple was doing something like that, I think it can win in court.

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2 minutes ago, brianwalden said:

You've identified the main point of contention. I've expanded my understanding of what US law considers to be a security considerably lately. I no longer interpret it so strictly as an explicit agreement between investors and the company being invested in.

The XRPL is like TCP/IP. It's not much good without the various web technologies built on top of it. On the otherhand Facebook isn't much good without TCP/IP. The XRPL is like that base layer - it was functional from the start in the sense that anyone could generate a wallet and use it and it worked. I, personally, very much enjoyed using the ledger in the early days. But it's too simplistic to fit into our modern financial system with all the regulations.

Just like today's social media and streaming services couldn't run on the 1980s internet, Ripple has been trying to build those higher layers of products and services that can interface with the modern banking system. It sold XRP to do so.

Ripple is going to argue that XRP is the utility token of the XRPL and it sold it much in the same way that a gold mining company might sell its gold in order to fund the next generation of mining equipment that can go deeper and faster or whatever to mine more gold. The SEC is going to argue that Ripple wasn't just selling XRP in and of itself but the promise that Ripple's next generation products would increase the value of XRP, much the same as if the mining company was advertising that it's new mining techniques would reignite gold's popularity and usher in a new golden age for gold.

If the SEC can prove that Ripple was doing something like that, I think it can win in court.

Just to clarify what I'm saying. I'm not knocking the functionality of the XRPL. From a functional standpoint it's been doing exactly what it's designed to do for 8 years. I'll fully admit it hasn't gotten the adoption we all wanted, but it wasn't because it wasn't functioning.

For comparison, Venmo also doesn't function as a payments system for big businesses and financial institutions, but it's perfectly functional for peer to peer payments. Ripple's situation would be similar to if Venmo the company started trying to build the types of tools and services around Venmo that big banks would need to use it.

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Keep clarifying, because I was in the other window digging up 3 years worth of Bitcoin commercials that have aired all over TV and the internet, proclaiming it the "new gold" and a "store of value";  I think you may still be just a little bit confused re: who has marketed what and how...  Anyway, that's the problem with all of these analogies and similes - they only go so far.

What was it that the SEC got caught editing out of one of the documents they were forced to turn over?  "Ask 10 different securities lawyers and you'll get 10 different answers."   No wonder they fought showing that - it was the truth.

 

Edited by NightJanitor
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10 hours ago, NightJanitor said:

Are you trying to tell me the Ethereum Foundation doesn't support its own ecosystem?  They have a conference for people developing using Ether like once a week.  (They invest in many of same.)

No I wasn't trying to tell you that. But the fact that Ethereum have broken the rules doesn't make it ok for everyone else to break the rules as well. However, the SEC made a huge blunder in giving Ethereum a free pass and so Ripple's fair notice defense will likely succeed. The SEC has tried to roll back it's free pass and claim that it was not SEC policy, but people like DAI have done such a great job churning out videos of everyone who is anyone using his speech as official SEC guidance that the fair notice defense will likely succeed. We can only hope that Hinman and Clayton are investigated officially and the reason why they gave Ethereum a pass exposed. 

11 hours ago, NightJanitor said:

Taking your stance to the absurd extreme, the only way anyone escapes arbitrary/capricious SEC enforcement and is allowed to continue to work on anything they invent is to pull a Satoshi and abandon your project and cuckoo-bird it...

Not exactly, but the SEC are in a difficult position - prior to BTC nothing like this existed. Companies sold shares and these were regulated by the SEC and certain rules are in place for how this should happen and what can be done to stop pump'n'dump of share prices. Along comes blockchain and disrupts this stasis. Everyone knows that all of these token sales are basically securities (or scams) and the $ is used to build out networks and line the pockets of early users, but the SEC did nothing for years and the situation has got completely out of hand. They clearly picked on ripple because they are one of the biggest and if they can beat them, then they can set a precedent for others. Gensler et al are in a very tough positions and it's not their fault - its the fault of the 8 years of inaction before they took over. Nobody on this forum agrees with me, and everyone bashes Gensler and blames him.

10 hours ago, RipMcGillicuddy said:

Maybe they used a dollar or two from this as well? Do you have the breakdown?

https://techcrunch.com/2019/12/20/ripple-raises-200-million-to-improve-global-payments/

I do not, but Ripple have been very clever throughout and raising funds through traditional means was a very sensible thing to do, and that's where all their early funding came from. They have tried very hard right from day 1 to avoid classification of xrp as a security, and this helps them. But ultimately, they have sold a lot of xrp and used that money to improve the company. You and I (probably) agree that xrp is a currency and they are within their rights to do this as their dream for xrp as a global reserve with high liquidity needs lots of xrp with a decent value. The SEC do not agree and their job is to try to regulate it.  The fact that they have funds from legitimate sources in the eyes of the SEC does not affect their view of token sales.

I do not know how the SEC get themselves out of the situation they are in, we wait and watch (or at least I do) for some legal framework to be drafted...

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16 hours ago, NightJanitor said:

the only way anyone escapes arbitrary/capricious SEC enforcement and is allowed to continue to work on anything they invent is to pull a Satoshi and abandon your project and cuckoo-bird it...

this is just my opinion...but I feel like for the SEC to approve a BTC ETF, they need to know (somehow through some convoluted government channels) who/what Satoshi is and that there is no chance of activity from that wallet. If you're in the SEC's shoes - as protector of investors - how could they authorize it without being 100% sure that the Satoshi wallet doesn't wake back up and sell? 

These are just thoughts in my head anyway and off topic. 

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12 hours ago, jbjnr said:

No I wasn't trying to tell you that. But the fact that Ethereum have broken the rules doesn't make it ok for everyone else to break the rules as well.

I hesitated on including those lines about the Ethereum Foundation "supporting its own ecosystem" because I anticipated that you'd focus on it and make exactly that point, but I included them, anyway, because Ethereum Foundation is another case - dissimilar in its beginnings, in my view (I think they *did* knowingly break some *established* rules), but I wanted, anyway, to point out that they are, now, however many years and years later, both in a similar situation, but treatment has been very, very different.  We agree, anyway, on that last point, to some extent - and that is at least some small progress.

12 hours ago, jbjnr said:

Everyone knows that all of these token sales are basically securities (or scams) and the $ is used to build out networks and line the pockets of early users, but the SEC did nothing for years and the situation has got completely out of hand.

You'll get very little disagreement from me that this space is filled, nearly to the brim, with bad actors - but there are a handful who aren't - and we also agree that SEC has done a poor job of communication and rule-making, so much so, in fact, that they were considering, and this is the nicest way I can spin it, deputizing and sanctioning one company in the space to form a self-regulation organization which would allow that company, officially, to become the "beat cop" (I'll spare you my lectures about how the US Gov bureaucracy has a bad habit of outsourcing its own responsibilities).

There are a variety of ways to interpret those actions - ask 10 lawyers and you'll probably get "10 different answers" - ranging from those with operative words like "incompetence" or "corruption" to a more charitable "failure to prioritize."

(Whether a sort of after-action (or after looong in-action) report will be necessary is beyond the scope of this note...)

12 hours ago, jbjnr said:

They clearly picked on ripple because they are one of the biggest and if they can beat them, then they can set a precedent for others. Gensler et al are in a very tough positions and it's not their fault - its the fault of the 8 years of inaction before they took over. Nobody on this forum agrees with me, and everyone bashes Gensler and blames him.

I agree with your read of the impetus behind their target selection, but I am reminded of Admiral McRaven's well-received and highly-lauded speech to a class at the Naval Academy telling *everyone* how disappointed he was concerning "their" bad behavior and how he would not tolerate it and how he punished everyone & over-reacted.

And I also remember it turning out that the incident which prompted his speech was orchestrated by a bad actor - turning out, itself, to be - what's the right word - fraudulent? - and that it's a good thing for him that he didn't just select some random cadet to scapegoat over the matter, to "set an example," because then he'd have looked like considerably more of a capricious, bureaucratic jerk who was only out to protect himself and his institution - with absolutely zero thoughts (or perhaps a good, civilian understanding) of how real justice ought actually "be done."

Punishing everyone - or "making an example out of a good actor, just to scare the bad actors" - is not leadership.

And it's certainly not justice, either.  Not in my book, anyway.  We don't disagree on wanting folks to "behave" - I suspect, however, that both your and my experiences (or conclusions drawn from them) may be a different when considering "methods" to achieve such ends.  Once you've been the good kid punished for someone else's sins...

So, I think that's, roundaboutly, and in story form, something Gensler - and SEC as institution - ought to consider.

12 hours ago, jbjnr said:

I do not know how the SEC get themselves out of the situation they are in, we wait and watch (or at least I do) for some legal framework to be drafted...

I have some ideas in that direction - and so do others, who are officially involved, including some SEC Commisioners - but I will just ask one leading/indirect question and then let you consider it.  Can the Ethereum Foundation do an IPO?

I think the answer, there, is probably no, because they chose a structure that would largely shield them from the rules which I think they probably *did* know they were breaking and which were *well-established*.  But that's not true for, well, there are others in the space who have, as you mentioned, been very careful to be compliant and have chosen a structure which, from the beginning, they knew probably put them at risk of possibly becoming a target - but they did that, I think, knowingly - because their intentions were honest and they were trying their best to navigate a grey area, which, now, everyone seems to at least be willing to admit was, indeed, a grey area and that blockchain tech is novel, holds a tremendous amount of promise, and that specific rules (or Safe Harbors or some other regulatory mechanism) are genuinely needed...

I'll leave it there, for now.

ETA:  Now that I think about it for another moment, no sort of "blue sky" / "you're compliant now" (whatever that means, under this SEC regime) benefits accrued to Coinbase, after their own IPO - they're *still* in limbo from the SEC... so, maybe Commissioner Pierce is ahead of me on that one and has something closer to "the right idea," whether it's safe harbors or even another agency or some other mechanism - or - God forbid - they have to buckle down and actually publish RULES.

We'll see...

 

Edited by NightJanitor
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Regarding RippleNet vs XRPL vs XRP...

I visualize it as the earth. With 3 spherical layers/networks.

XRP is the earth's magnetic core (it connects all the things on earth, via Autobridging).

Issued assets & NFTs etc are the earth's surface. This is where all the interaction occurs (orderbooks, Trustlines, payChans)

RippleNet is the atmosphere where value floats, privately surrounding the middle two networks. This is a network of banks running their own private Sidechains, and connecting those Sidechains with eachother. When this network starts internetworking with the lower two layers (regulatory clarity), value will flow like an IoV ecosystem or "multiplex" a network of networks.

Edited by KarmaCoverage
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