The question of whether Ripple’s XRP is a security is on hold until Ripple’s four-year legal battle with the SEC had ended. In the meantime, the decade-plus decentralized platform giant won’t hold its steps, and it is planning to launch their first stablecoin as soon as the end of this year.
Highlights:
- Ripple is going to challenge USDT and USDC by launching its own stablecoin.
- More cryptocurrency companies are going to adopt stablecoins for institutions.
- The four-year lawsuit between Ripple and the SEC leaves XRP unclear in its nature.
Ripple Is launching A Stablecoin
Ripple is set to launch stablecoin, which is pegged to the US dollar. It will be available on the blockchain just like XRP. Stablecoins are entering the cryptomarket as cryptocurrencies and are designed to ensure a stable value.
This objective is achieved by pegging the stablecoin to a fiat currency in a 1:1 ratio. In this case, stablecoin will be pegged to the US dollar. Such a step ensures that there is less volatility and stablecoins work as a more “stable” means for financial transactions and investment. It becomes stable by backing it with liquid reserves like government bonds or bank reserves.
You will find stablecoin on the same blockchain as Ethereum and on the XRP ledger. A third-party accounting firm will ensure proper regulation and asset audits as seamless transactions take place in a safe manner.
After all, everyone can guess that these coins will act efficiently in bridging the gap between decentralized finance capabilities and traditional finance. Traders will not need to look for alternatives between fiat and digital assets anymore. Additionally, the stablecoin market is skyrocketing with a work of around $150 billion and is expected to reach 2.8 trillion by 2028.
Reasons Behind Ripple Launching Stablecoin
In case you missed the part, the XRP ledger is the native blockchain of digital assets. Introducing stablecoins would provide more liquidity, allowing more developers and users to enter the system. Also, a token pegged to a stable currency is uncharted territory for Ripple.
The market is dominated by Tether, with a cumulative value of $106 billion in circulation on different blockchains. Next in line is the USD coin, valued at $33 billion. Stablecoin will act as a tool for Ripple to explore this uncharted territory and attract more users to the XRP ledger.
The Legal Battle Between Ripple and SEC
While the precise launch date of Ripple’s new coin remains unknown, the lawsuit between it and the U.S. Securities and Exchange Commission (SEC) is ongoing.
The case could be traced back as early as December 21, 2020. The SEC contests that Ripple is either a security or an asset according to the Howey Test. Ripple has contrasting views. It sees XRP as a currency or commodity and argues that it should have different regulatory requirements. And why is Ripple contesting against the SEC? The answer is lower regulatory requirements and fines for commodities compared to securities!
An Overview of SEC Claims
The SEC claims that Ripple has engaged in unregistered securities offerings of a value of $1.3 billion through the sale of XRP tokens to investors.
The SEC goes on to claim that Ripple has violated Sections 5(a) and 5(c) of the Securities Act of 1933. Both acts forbid the offer for sale of securities. The only way to make it possible is through a proper registration statement filed with the SEC.
Another claim from the SEC is that Larsen, Garlinghouse, and Ripple have collectively misled investors by making false claims about XRP and its uses.
The SEC states that investors spent money on XRP tokens based on the misleading information that was provided. They also state that Ripple has maintained aggressive control over the sale of XRP, which ultimately qualifies XRP as a security under the existing U.S. security laws.
Ripple’s Response to SEC Claims
In response to this claim, Ripple is now working to file a lawsuit against the SEC and their demand of $2 billion. Ripple claims that the SEC does not provide clear regulatory requirements for digital assets. They have not clearly specified how to classify digital assets. Therefore, the entity molds digital assets according to their convenience.
Ripple states that such confusion prevents innovation in the crypto market. Ripple further argues that XRP is used as a means of exchange and to store value. It acts as a digital currency like Ethereum and Bitcoin and should receive similar regulatory treatment.
Accusing the SEC of baselessly filing a lawsuit, Ripple asserts that the resulting confusion surrounding XRP has caused significant instability in the crypto market and has adversely affected investors.
Now, XRP holders are waiting for the expected filing because it is seen as the last straw Ripple is holding onto against the SEC to get rid of the penalties.
What A Stablecoin Would Help to Ripple
The SEC might fine Ripple up to $2 billion, causing the company to search for another reliable source of income. Launching a stablecoin would be a major step for that, as Ripple’s CEO Brad Garlinghouse believes the stablecoin market “will look different, certainly based on size” in the future.
On the other hand, working with unpegged-digit assets entails erratic currency risks that legitimate financial institutions do not wish to assume. Many of them would still likely prefer fiat rather than a free floating currency.
By looking back to Ripple’s existing products, i.e. XRP Ledger, On Demand Liquidity, and RippleNet protocols, this situation would be clearer, as they are all falling short. That may be the rationale behind Ripple’s and other cryptocurrency companies’ decisions to adopt stablecoins.
You can find more about XRP and other information about Ripple on CoinEx.
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