In a significant legal development, Ripple, a blockchain startup, is confident that U.S. banks and financial institutions will demonstrate a keen interest in adopting its XRP cryptocurrency for cross-border payments. This optimism stems from a landmark ruling that determined XRP, which is closely associated with Ripple, is not necessarily a security in itself.
Stu Alderoty, Ripple’s general counsel, revealed in a recent interview with CNBC that the company expects to initiate discussions with American financial firms regarding the utilization of its On-Demand Liquidity (ODL) product, which leverages XRP for efficient money transfers, during the third quarter.
Last week, a judge in New York delivered a groundbreaking verdict in favor of Ripple, contesting claims made by the U.S. Securities and Exchange Commission (SEC) against the company. The ruling clarified that XRP, as a cryptocurrency, does not inherently qualify as a security. This decision carries significant implications for Ripple, which has been embroiled in a three-year legal battle with the SEC, accused of conducting an illegal offering of $1.3 billion through the sale of XRP. Throughout the dispute, Ripple vehemently maintained that XRP should be classified as a commodity rather than a security.
The repercussions of the SEC’s allegations have been detrimental to Ripple’s business, resulting in the loss of customers and investors. Notably, MoneyGram, a prominent U.S. money transfer giant, terminated its partnership with Ripple in March 2021. Additionally, Tetragon, a UK-based investor that previously supported Ripple, divested its stake after an unsuccessful attempt to sue the company in order to recoup its funds.
When asked whether the ruling would prompt American banks to resume using Ripple’s ODL product, Alderoty confidently responded in the affirmative, stating, “I think the answer to that is yes.”
Ripple’s adoption of blockchain technology enables the secure transmission of messages between banks, offering an alternative to the traditional Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.
Alderoty expressed hope that the recent ruling would provide financial institutions, both existing and potential customers, with reassurance, encouraging them to engage in conversations about the challenges they face in cross-border transactions. By addressing real-world issues such as exorbitant fees associated with international transfers, Ripple aims to facilitate productive discussions and foster genuine business opportunities throughout the United States.
Despite Ripple’s current reliance on international markets, with a majority of its business sourced outside the U.S., the company still maintains a significant workforce in its San Francisco headquarters. Ripple employs over 900 professionals globally, approximately half of whom are based in the United States.
XRP, the cryptocurrency employed by Ripple, plays a pivotal role in facilitating global money transfers. Presently, XRP holds the position of the fifth-largest cryptocurrency by market capitalization, amounting to $37.8 billion.
Ripple utilizes XRP as a bridge currency, bridging the gap between different fiat currencies during transfers, eliminating the need for pre-funded accounts on the receiving end. This innovative approach enables the movement of funds within seconds.
Nevertheless, it is important to note that the recent ruling does not equate to an unqualified victory for Ripple. While the judge affirmed that XRP does not constitute a security, they also acknowledged that certain XRP sales qualified as securities transactions. According to the ruling, approximately $728.9 million worth of XRP sales to institutional buyers indeed met the criteria for securities transactions, as they exhibited characteristics of a common enterprise and an expectation of profit.
Alderoty conceded that the ruling was not an unequivocal win for Ripple, and the company intends to carefully evaluate its implications to gauge the impact on its operations. He acknowledged that while Ripple’s current business operations remain unaffected by this aspect of the ruling due to its predominantly international clientele, they will closely analyze the decision to ascertain its potential ramifications for institutional transactions.
“We will thoroughly examine the judge’s decision, assess the needs of our clients and the market, and determine if there is a viable framework that aligns with the judge’s findings regarding institutions,” Alderoty explained.