Ripple Lawsuit

Hi everyone, this is Charles Hoskinson broadcast. Let's see if it's working. I think we're live. Yeah, we're live. Hi everyone, this is Charles Hoskinson broadcasting live from warm sunny Colorado.

it's currently 8:11 at night, 4 days before Christmas, but I figured I'd make a quick video because a bombshell just got dropped in the entire cryptocurrency space. Ripple Apparently, according to the SEC or according to Ripple's interpretation of the SEC is a security or something a security, who knows? It's complex situation. facts are quickly materializing and we don't know much. generally the SEC is the one to announce this, not the company.

and they they file a lawsuit or something like that. and you have a companion document with their entire argument of what's going on, what measures they're seeking, the evidence they're presenting, and there's usually some form of a court involved. and for a large company, almost always this action is not out of the blue. It comes usually after failed negotiations with the company they're going after. for example, BitMX when there was an event there that was only on the back of a lot of internal discussion with I think the CFTC.

some cases it pans out like Pollinext for example they had a shotgun wedding with circle just to kind of clean everything up and other cases it fails and there's a regulatory event. Now, the reason why this is a big deal for the industry as a whole is that it may have a profound implication on how the SEC in the future views whether something is a security or not. Now that said, Ripple has some unique properties about it as a cryptocurrency or a purported cryptocurrency which many people in the industry create believe creates enough air between it and the third generation cryptocurrencies Ethereum, Bitcoin and these other standards ranging from your rights as a holder of the token to the control of the oversight entity to the diversity of actors to how decentralized the ecosystem is to the use and utility of the underlying token, how the consensus algorithm works and so forth. so there are a lot of facts and circumstances there that it's just impossible to know where the SEC is going with this until we actually read the court filing and we we analyze it. from our part we're of course going to look at it and analyze it but I don't believe on the surface this is going to have any impact on EOS Polka Dot Tasos Cardano Ethereum or S2 for the time being this is an older matter and this is something that's probably been going on now for two or three years behind the curtains between the Ripple company and whatever the hell they call themselves these days and the Securities Exchange Commission and no amount of putting Ben Loskies on your board or other things are going to resolve that.

it's just something that's going to work its way out one way or the other. Now what's interesting is the company that issued XRP, they sold about $1.2 billion worth of tokens over the years mostly through retail channels to people throughout the space according to Msari. and there's about eight years of history there. good, bad, and ugly.

And there have been some prior enforcement actions where fines were paid and all kinds of things are said. Certainly, largest cryptocurrency businesses would be on the on the scale of like Blockstream or Consensus getting hit with something just very unexpected. It's a very unorthodox thing as well. because generally speaking, an outgoing chairman of this SEC wouldn't leave a giant pile of fire for the incoming chairman to deal with. that usually doesn't happen.

This is equivalent to a CEO making a decision to do a major merger and acquisition or an IPO or a big unfinished piece of business without the consent or knowledge of his successor and then having the successor have to manage the entire affair. Biden administration's coming in June 20th. They're going to be dramatic changes to the Treasury Department. Looks like Janet Yellen has a good possibility of becoming Treasury Secretary and that means there's going to be a shakeup at all the regulatory bodies. Fininsend, the TR, things like CFTC, things like SEC and so forth are probably going to have very different leadership in the next 60 to 90 days pending confirmations than the incumbent leadership today.

So, it's incredibly puzzling to me the recent decision from Fininsen to advocate that wallets have to be coupled with identities and this recent lawsuit with Ripple. It's a very significant thing and frankly it's the kind of thing that as a courtesy you would defer until the next administration to look at because any lawsuit of this scale and magnitude will probably take greater than a year to litigate regardless of where it ends up because of the size of the entities involved. when you're talking about a multi-billion dollar entity, you're talking about a lot of lawyers and you're talking about a lot of facts and materials and delays and other things in court, it's going to be, it's going to be a wild ride. So, we as an industry, we're going to know a lot more probably in the next week or two when the SEC says something about this. It could be as early as tomorrow.

it could be as because of Christmas it could be the following week but we'll see something soon and then based upon that we'll kind of know what the arguments are where everybody sits but on the offset on the outset I don't think that this has any impact at all on Cardano Cardano standing we're 100 times more decentralized than Bitcoin there's real use and utility it's definitely a cryptocurrency platform and it's just kind of the next generation of things from what see with Ethereum and Bitcoin and I feel very comfortable that would be classified as a commodity by any reasonable standard and test. and the ecosystem is run by thousands of actors at this point with hundreds of thousands of community members and does not require any custodial core entities and the consensus system is permissionless as opposed to Ripple which is permissioned. actually when you look at it you drill into it and look down in the hood and the custodial entity has enormous command and control whereas we have a mandate from the community but at the end of the day the community can decide the directions it wants to go so I don't think this is going to have any material impact on the third generations as I said and no need for panic as an industry as a whole but it is a a really puzzling thing to me that something like this would come come out so quickly before one administration ends to another. It's just a bizarre thing. 4 days before Christmas is a bizarre thing as well.

This is not normal behavior. Normally, you do this in January if you're going to do it, especially if there were negotiations between the two entities. And it's bizarre that Ripple was the one to announce it as opposed to the SEC themselves. so I'm not sure why they wanted to get ahead of the story, but okay. Interesting thing.

So, it was a shock wave to me. I was eating dinner, drinking coffee, and and I saw it come up on my Twitter feed, and I I thought it was a joke when I first saw it. I like, "yeah, I hear that every day." And then when it actually was a Fortune article, and there was a Wall Street Journal article confirming it and a CoinDesk article, I said, "Okay, well, I guess this is what we're doing now." So 2021's going to be a really interesting year.

likely a lot of lawsuits are going to be filed about the Fininsen recent ruling, especially the the terrible process that Secretary of the Nation is following. and hopefully that gets overturned. but if anything, at least a process can be followed, not an insane 15-day review period during the holidays. And as for the Ripple security thing, we'll kind of see what happens with all of that. a lot of facts are going to come out into the open domain because of this regulatory event.

specifically how much the main company has sold, who they sold it to, their business conduct, their internal statements versus their external statements. these are very revealing lawsuits in a certain respect and they are very large and they're done in process and they're slow and lumbering and it's going to take quite a bit of time for this to work its way through the courts. and it's going to have an impact on the how he tests interpretation of cryptocurrencies in general. but I don't think it says much at all about proof of stake. I don't think it says much at all about sufficiently decentralized are there standards that are held and given that the initial distribution event of XRP occurred more than eight years ago for statutes of limitation not to apply.

I guess the statement would be that XRP is still a security today if this lawsuit is to be believed and interpreted that way. this is not like what happened with EOS where they took a position on the initial distribution event but they did not take a position on EOS as a currency as it is today. so they could be a security could not be but basically they settled on the initial distribution for the ERC20 token. whereas XRP did not have that and so if it was a security if it is for this purpose of a lawsuit then it's always been over the last eight years and it opens a lot of puzzling questions about exchanges and engorgment and right of recision and so forth and so it's it's going to be a big one it's going to have a big impact on the industry and I don't see how like with Ethereum or EOS there's an easy technical way out it's one thing to say that there was an initial distribution and while that was a security the thing in market is not. It's another thing entirely to say the thing in market is and it could create liquidity concerns for XRP amongst other things and it further pushes the burdens of due diligence on exchanges.

So I imagine that this could in create more conservativism with exchanges for listing new tokens or force them to evaluate their existing portfolios more carefully. So by no means is this a small event. This is probably the biggest regulatory event in the history of our industry. and it's going to have a lot of impact moving forward and we'll learn a lot more over the next week or two as we exit Christmas and exactly what all this means for everybody and how significant it is going to be. this is not a new thing.

this is a event that has been going on for a while under the hood as I've mentioned. I think that Ripple's probably been engaged with the regulators for at least two years or three years in private discussions and clearly something broke down in those conversations in those discussions. and maybe it's just going to be the case where after battling for years and they pay a fine, there's some poultry registration and they move on. Maybe it's the case that this is the example that the SEC's been waiting for to establish case law and they've carefully thought about it and they've been super strategic. Maybe it's the case that policy is going to so radically change between administrations that this is the Treasury Secretary's last harrah to try to rock the boat with cryptocurrencies before cryptocurrencies become further legitimized.

Who knows? It's an interesting thing. But given it's so big, I decided that I would make a video just to let you guys know that certainly something we're tracking and watching. We think about this all the time. I directly engage with Coin Center and a litany of other people in the industry and we certainly have a lot of conversations about financial regulation, not just securities regulation, but also anti-terrorist financing, AML, KYC.

We talk a lot about definitions and functional regulation. We talk a lot about global regulation. We talk a lot about crossber payments and settlement, a lot about custodial issues and so forth. And so we're very well informed as an organization. And we of course try to use that to help steer product development.

For example, I knew that Minutian was planning something like this for quite some time, which is why with respect to KYC and wallets, which is why we specifically advocated Prism as a use case of authenticated wallets. And we started mentioning that to exchanges back in June of this year. So even though the standard came now here in December with their 15day review period, we'd been discussing this privately for over six months. And I've mentioned this in a few of my whiteboard videos over the last six months, authenticated accounts. as for securities, regulations, laws, that's something I've been dealing with since 2014 with Ethereum and it's something that the industry as a whole has been dealing with for quite some time.

And it comes down to decentralization, commanded control, the buyers and users, and a litany of other things. And there's not a direct overlap of the how we standard to how we test to cryptocurrencies as they are. It seems a lot of these things are done on a case- by case basis and there's not a lot of rhyme or reason as an industry. It's been some attempts to create standards but they're few and far between. And one of the big bell weathers for a long time in our industry was whether XRP is a security or not.

And certainly there's a lot of adherence on all sides and there was a class action lawsuit that was started in 2018 specifically on this topic and now we've got a point where it looks it's escalated to the actual government litigating it. So buckle up. It's going to be kind of a wild ride as it for the industry as a whole. but there's an old saying the dog barks but the caravan moves on and Cardano is just fine. we're going to just keep chugging away and keep doing our thing as will the other third generation coins like Polka Dot and TASOS and F2 and so forth and we'll just keep changing the world and keep adding utility and value.

but it goes to show you you can't just go hire Mr. Bit license and put them on your board and then somehow all your problems go away as much as you think that adds value. So, until next time, my friends, I'll let you I'll let as soon as I know something. But I fig I'd make quick video and just calm everybody down and, let everybody know that, it's something definitely we as an industry are tracking and as soon as I know something substantative and I've had a chance to review what the SEC has said, then, I'll let you guys know what my interpretation of that is. Until next time, have a wonderful night and merry Christmas.