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Ripple’s XRP war is heating up – Legal expert insight

Ripple's XRP war is heating up - Legal expert insight

In a significant legal development, Ripple achieved a crucial, albeit partial, victory against the US Securities and Exchange Commission (SEC) last month. 

Notably, in a recent ruling, a US judge declared that the blockchain firm did not breach securities laws by selling its XRP token on public exchanges. This decision has been met with enthusiasm from XRP investors, leading to an impressive 35% surge in the token’s value over the past month.

However, although Ripple won a short-term battle against the top securities regulator, the far-reaching impact of the lawsuit may not be as positive for the crypto space, according to fresh legal insights shared with Finbold regarding the case on August 4.

Outdated Howey Test making crypto landscape unclear

With the growing uncertainty about the final outcome of the SEC-Ripple lawsuit, Finbold sought professional views on the case from prominent Web3 attorney Charles Slamowitz.

According to the legal expert, after crypto enthusiasts eagerly celebrated Ripple’s recent triumph, the blockchain space may be back in ‘muddy regulatory waters’ as the hunt for clarity marches on. 

Slamowitz cited the so-called ‘Howey Test’ as one particular factor that could negatively affect the ongoing Ripple case, but also the broader regulatory landscape in the US. 

However, Slamowitz believes the test is outdated. Despite this, it has become increasingly entrenched as the regulatory standard in the US. As a result, the growing use of this obsolete criterion can only make the unclear crypto landscape even more murkier, the expert argued.

“Not only did the outdated Howey test become more entrenched as the regulatory standard, but the use of such a standard makes for a far murkier crypto landscape.”

– Slamowitz told Finbold.

What is the Howey Test?

The Howey Test is a legal criterion used in the United States to determine whether a transaction qualifies as an investment contract and, therefore, as a financial security. The US Supreme Court adopted the Howey Test in 1946 in an effort to create a uniform analysis for lower courts and litigants to use when determining if an investment qualified as a security.

Looking ahead, Slamowitz also believes that institutional investors will have to potentially sidestep securities regulations in order to carry out simple agreements for future tokens (SAFT) with crypto-related startups. 

SAFT refers to a financial contract often used in the cryptocurrency industry to raise funds for blockchain projects. It allows investors to purchase the right to receive tokens once they are developed and launched.

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