It's time for the SEC to settle with Coinbase and Ripple

The Securities and Exchange Commission should recognize that it's time to settle their cases against Coinbase and Ripple Labs.

In every major dispute, there comes a time when you realize it's time to settle. A ruling doesn't go your way, a juror looks sideways at your legal team, the judge makes it clear it's time for a settlement conference. After Judge Analisa Torres' decision in SEC v. Ripple, the time has come for the United States Securities and Exchange Commission to settle the rest of its case against Ripple Labs – as well as its case against Coinbase.

The SEC attack on crypto used a flexible legal definition of what constitutes a security that must be registered with the SEC under a legal test established by the Supreme Court in the 1946 case SEC vs. Howey. For most of its history, the SEC has used this tool to fight outright frauds and scams with little economic reality behind them. You can understand why judges have tended to give the SEC the benefit of the doubt and made the test increasingly flexible on a string of landmark scam cases. Using this flexible test to attach legitimate crypto projects is different and ultimately leaves crypto projects with no way to register.

Torres ruled that sales to retail investors of the XRP token (XRP) were not necessarily tied to Ripple's entrepreneurial efforts as a company and, therefore, failed an element of the Howey test. This is a unique cryptographic twist on the Howey test. Tying the investment to the entrepreneurial efforts of whoever is selling the interest is going to be more difficult in crypto because the tokens do not represent a stake in the issuer. Thus, the buyer of a crypto token is not as tightly tied to the efforts of the founder of a new blockchain as investors in traditional company stocks.

Related: Supreme Court Could Stop SEC War on Crypto

This transforms the SEC