Key takeaways
- The SEC claimed Ripple sold XRP as an unregistered security, while Ripple argued XRP is a digital currency.
- XRP’s value dropped by more than 50% after the lawsuit was announced, leading to major exchanges delisting it.
- Ripple has built partnerships with over 300 financial institutions, bolstering community faith despite legal challenges.
- The SEC eventually drops its appeal, leading to a major win for Ripple.
The SEC vs. Ripple lawsuit centered on the United States Securities and Exchange Commission’s claim that Ripple illegally sold XRP (XRP) as an unregistered security, while Ripple argued that XRP is a digital currency, not a security.
The 2020 lawsuit came as a shock to many, especially considering that XRP was the third-most popular cryptocurrency by market capitalization during the late 2017 and early 2018 crypto boom.
XRP’s appeal wasn’t just speculative. Unlike Bitcoin and Ethereum, which relied on energy-intensive mining to generate new tokens, XRP’s entire supply of 100 billion tokens was created all at once. This distinction allowed Ripple to offer faster, more efficient transactions, making XRP especially attractive for cross-border payments where speed and cost are crucial.
What really set XRP apart, however, was Ripple Labs’ control over much of its supply. The company holds a significant portion of XRP in escrow, releasing it in measured amounts to maintain market stability. But this is where the issue of centralization arises.
According to the Howey test, an asset is considered a security under US law if it involves an investment of money in a common enterprise with an expectation of profit primarily driven by the efforts of others.
The SEC argued that Ripple’s control over XRP’s supply and its active promotion of the token’s value met these criteria, and thus XRP should have been registered as a security.
From the SEC’s standpoint, Ripple’s sale of XRP as an unregistered security warranted legal action.
This article will explore the key elements of Ripple’s history, the lawsuit and its broader implications for the cryptocurrency market.
Ripple and XRP: A background
Ripple’s journey began in 2012, co-founded by Chris Larsen and Jed McCaleb, with a simple idea: revolutionize global payments. Ripple Labs, originally known as OpenCoin, set out to build a decentralized system to make transactions faster and cheaper than traditional banking. It wasn’t just about creating another cryptocurrency; Ripple aimed to bridge the gap between digital assets and the world of mainstream finance, with XRP as its digital currency.
Unlike fully decentralized blockchains like Bitcoin, Ripple uses a unique consensus algorithm that relies on a network of bank-controlled servers to validate transactions.
Despite this, Ripple maintains a level of decentralization by allowing multiple trusted validators, voted in by the community, to confirm transactions (aside from Ripple Labs), ensuring the network remains secure and efficient while catering to financial institutions.
By 2013, Ripple was attracting serious attention from investors and quickly rebranded from OpenCoin to Ripple Labs, signaling its growing ambitions.
The real turning point came in 2014 when Ripple scored its first big banking partner, Germany’s Fidor Bank. This showed Ripple’s potential for shaking up traditional cross-border payments. More deals followed, with major players like Santander and American Express getting on board.
RippleNet, Ripple’s payment network, became the backbone of this strategy, helping financial institutions settle payments in real-time across borders. XRP played a key role, acting as a bridge currency to make those transactions faster and cheaper. By 2017, XRP’s value had exploded, briefly making it the second-largest cryptocurrency by market capitalization at over $120 billion.
Ripple wasn’t just building relationships with banks; it was eyeing the global remittance market, too. In 2019, Ripple teamed up with MoneyGram, a major player in the remittance industry, and invested $50 million into the company. MoneyGram started using XRP for cross-border payments, showing the real-world impact Ripple was striving for.
By 2020, Ripple had partnered with over 300 financial institutions in more than 40 countries and processed billions of dollars in payments. Yet this success also brought scrutiny. Ripple’s growing influence led to legal questions about whether XRP should be classified as a security, and by the end of 2020, the US Securities and Exchange Commission (SEC) launched a lawsuit that cast a shadow over Ripple’s future.
Did you know? Ripple’s consensus mechanism, unlike many blockchains, requires 80% agreement from its validators to confirm a transaction. If the consensus falls below this threshold, the network halts until consensus is restored, ensuring a high level of security and reliability while maintaining fast transaction speeds. This unique system allows Ripple to process transactions in just three to five seconds without relying on traditional mining.
SEC’s case against Ripple
Regulating cryptocurrency in the US has always been a challenge. The decentralized nature of digital currencies like XRP makes it tricky to fit them into existing legal frameworks.
Are they currencies? Securities? Commodities? Something else entirely?
The lack of clear guidelines has created a legal gray area for crypto companies, and Ripple found itself right in the middle of it.
In December 2020, the SEC filed a lawsuit against Ripple Labs, Chris Larsen and CEO Brad Garlinghouse. The SEC’s central claim was that Ripple had raised $1.3 billion by selling XRP as an unregistered security, violating federal securities laws. According to the SEC, Ripple’s sales of XRP were essentially an investment contract, meaning buyers were expecting to profit from Ripple’s efforts — making XRP a security under US law.
This wasn’t the first time the SEC had targeted a cryptocurrency. In fact, Ripple’s case followed a series of crackdowns on other digital assets. One notable example was Telegram’s cryptocurrency, the TON (Telegram Open Network). In 2019, the SEC filed a lawsuit against Telegram for raising $1.7 billion through an initial coin offering (ICO) of its token, GRAM, which the SEC also classified as an unregistered security. The court ultimately sided with the SEC, forcing Telegram to abandon the TON project and refund investors.
Similarly, Block.one, the company behind the EOS (EOS) token, faced SEC scrutiny in 2019. It was accused of conducting an unregistered ICO, raising $4 billion. While Block.one settled the case by paying a $24-million fine, it was another clear indication that the SEC was serious about enforcing securities laws in the crypto space.
The SEC’s actions against Ripple fit into this broader pattern of targeting companies that raised significant funds through token sales without registering them as securities. For the SEC, Ripple’s case was about enforcing the law and protecting investors from what they saw as a company sidestepping regulatory obligations. For Ripple, though, this lawsuit would spark a major battle over the very definition of what a cryptocurrency should be in the eyes of US law.
Did you know? The SEC was founded in 1934 in response to the 1929 stock market crash with the primary goal of protecting investors and maintaining fair, orderly and efficient markets in the US.
Ripple’s defense
Ripple didn’t waste time pushing back against the SEC’s claims. From the start, its defense centered around one key argument: XRP isn’t a security. Ripple emphasized XRP’s utility as a digital currency, designed for fast, low-cost cross-border payments. They argued that XRP functioned as a bridge currency, with its primary use in real-world transactions, not as an investment meant to generate profit based on Ripple’s efforts.
A major point in Ripple’s defense was the comparison to Bitcoin (BTC) and Ether (ETH). Both had been declared not securities by the SEC, as they were considered sufficiently decentralized. Ripple argued that XRP, despite being initially sold by Ripple Labs, operated in much the same way: sold on open markets with a value independent of Ripple’s activities. They claimed that penalizing XRP while allowing Bitcoin and Ether to operate freely created an unfair regulatory standard.
Ripple’s defense challenged the SEC’s interpretation of securities laws, requiring extensive legal and technical evidence from both sides. Ripple also sought access to internal SEC documents to strengthen their argument, which prolonged the proceedings.
Additionally, the case had broader implications for the entire crypto industry, with both sides fighting over a precedent that could shape future regulations. This combination of high stakes and legal intricacies kept the lawsuit unresolved for years.
Impact of SEC vs. Ripple
Shortly after the lawsuit was announced in December 2020, XRP’s price plummeted, dropping by more than 50% within days. Investors, unsure of XRP’s future, began offloading their holdings in a panic.
Major exchanges such as Coinbase, Binance.US and Kraken reacted quickly, delisting or suspending XRP trading to avoid regulatory fallout. This sudden removal from mainstream exchanges further eroded investor confidence as liquidity dried up and access to XRP became limited for US traders.
The delisting of XRP on major platforms wasn’t just a setback for Ripple; it had ripple effects on the broader crypto market. The lawsuit raised fears that other cryptocurrencies could face similar regulatory scrutiny, which caused temporary dips in the prices of several other tokens. Questions surrounding what constitutes a security versus a currency stirred uncertainty across the industry, dampening market sentiment.
Despite these challenges, Ripple maintained a strong base of supporters. Many within the XRP community stood by the project, believing that Ripple’s partnerships with financial institutions and the real-world utility of XRP as a bridge currency would help it weather the storm. This community faith kept XRP from completely collapsing, even during the worst of the legal battle.
Over time, as Ripple fought the lawsuit and continued to operate, XRP’s price showed signs of recovery, though it never fully regained its previous highs.
The case against Ripple furthered wider discussions about the need for clearer cryptocurrency regulations in the US, with some viewing Ripple’s battle, among others, as necessary steps toward establishing a regulatory framework that would provide more certainty for crypto companies and investors alike.
History of the SEC vs. Ripple lawsuit
Here’s how the SEC vs. Ripple lawsuit unfolded over time:
In March 2025, Ripple announced that the SEC had dropped its planned appeal, effectively ending the case. XRP jumped 9% following the news. Legal experts clarify that the ruling does not establish binding precedent for the broader crypto industry.
Did you know? SEC vs. Ripple has been the longest crypto legal battle with the SEC in history. While other cryptocurrency projects like Telegram and Block.one faced SEC scrutiny and settled their cases relatively quickly, Ripple’s fight has extended for years, making it the most drawn-out legal dispute in the crypto space.
The future of the SEC vs. Ripple case
While the March victory may clear Ripple’s path forward, legal experts have been quick to clarify that the ruling sets no binding precedent for the broader crypto industry. Because the decision came from a single district court and never advanced through appeal, it cannot be relied upon by other firms facing similar scrutiny from regulators.
Garlinghouse also hinted that Ripple may not be done in court just yet. He raised the possibility of a cross-appeal to revisit the $125 million penalty tied to institutional XRP sales – a part of the 2023 ruling that still imposes consequences on the company, including a five-year fundraising restriction. Whether Ripple chooses to challenge that piece or settle it privately remains to be seen.
In the end, the SEC’s retreat is a symbolic and strategic win for Ripple – but not the regulatory clarity the crypto industry has been hoping for. Until Congress passes comprehensive legislation, questions around asset classification, enforcement scope, and market structure will continue to loom large. Ripple may have scored a victory, but the bigger regulatory fight is far from over.