The world of USD-pegged stablecoins is on fire, inching closer to a staggering $165 billion milestone! Fresh faces like Ethena’s USDe and heavyweights like PayPal and Ripple are shaking things up in this fiercely competitive arena. Ripple, especially, is aiming for the stars, foreseeing a jaw-dropping $2.8 trillion market by 2028. While Ripple sees stablecoins as a vast opportunity for crypto, the SEC finds it as a future violation of security law.  

What’s driving SEC’s move? Let’s find out. 

SEC’s Took a Jab at Ripple’s Stablecoins

Interestingly, Ripple’s stablecoin project finds itself under the SEC’s radar even before its official launch. In their recent filing, the SEC reiterated the status of stablecoin as an “unregistered crypto asset.” The SEC’s argument revolves around Ripple’s history of selling unregistered XRP, suggesting potential future violations of U.S. securities laws. Their scrutiny extends to Ripple’s forthcoming stablecoin, which is characterized as another unregistered crypto asset.

Ripple had announced its dollar-backed cryptocurrency in early April, touting it as an “enterprise-grade” stablecoin set to operate on both the XRP Ledger and Ethereum, aiming to marry traditional finance with the crypto space. According to Ripple’s CTO David Schwartz, the stablecoin’s name will be revealed in June.

Ripple Responded to the Controversy

In response to the SEC’s concerns about potential future violations of U.S. securities laws, Ripple argues that it has obtained licenses from various jurisdictions, including some that don’t classify XRP sales as securities sales. However, the SEC dismisses this argument as absurd, likening it to a New York restaurant claiming it doesn’t need a liquor license because it obtained a fishing license in California.

Legal Insight

The legal battle inches closer to conclusion, with the SEC pushing for a permanent injunction due to Ripple’s heavy reliance on selling XRP to On-Demand Liquidity (ODL) customers.

In a prior ruling, U.S. District Court Judge Analisa Torres found Ripple guilty of violating security laws through direct sales of XRP to institutional investors. The SEC accuses Ripple of attempting to rehash arguments from summary judgments. They advocate for a substantial penalty to deter future violations, asserting that a mere $10 million, as proposed by Ripple, wouldn’t suffice. They argue that penalties should align with ill-gotten gains, as is customary in court.

Responding to the SEC’s stance, Ripple’s top lawyer, Stuart Alderoty, expresses optimism about nearing resolution by this year if both parties stick to the deadlines. He criticizes the SEC for what he perceives as a misapplication of the law but acknowledges progress toward closure in the lawsuit. 

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