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The SEC’s 2020 lawsuit against Ripple Labs Inc. over XRP sales crystallised a decades-long struggle to apply 20th-century securities law to blockchain innovation. This article excavates the jurisprudential lineage from SEC v. Howey’s citrus groves to Judge Torres’s cryptographic ledger analysis. In 1946, the U.S. Supreme Court ruled that selling plots of orange groves with service contracts constituted an “investment contract” under federal law. Seventy-seven years later, that same precedent — SEC v. W.J. Howey Co. — would be invoked to determine the fate of a digital asset powering $26 billion in cross-border payments.

Source: © 2025 Digital & Analogue PartnersThe Birth of Decentralized Ambition

In April 2016, Christoph Jentzsch, a Berlin-based programmer, introduced The DAO (Decentralized Autonomous Organization), a groundbreaking blockchain-based venture fund designed to operate without a centralised management structure. Built on the Ethereum blockchain, The DAO allowed investors worldwide to acquire DAO tokens, granting them voting rights on proposed projects and a share in potential profits. This innovative approach attracted significant attention, and within a 28-day funding window, The DAO raised over $150 million worth of Ether from more than 11,000 investors, making it one of the largest crowdfunding campaigns in history. citeturn0search12

However, the enthusiasm was short-lived. On June 17, 2016, an anonymous hacker exploited a vulnerability in The DAO’s smart contract code, specifically a recursive call bug, allowing them to siphon approximately 3.6 million Ether (valued at around $50 million at the time) into a subsidiary account known as a “child DAO.” This event caused the price of Ether to plummet from over $20 to under $13. citeturn0search12

The attack exposed significant flaws in the “code is law” philosophy underpinning decentralised governance, highlighting the absence of legal safeguards for investors. In response, the Ethereum community debated potential remedies, ultimately deciding on a hard fork to reverse the effects of the hack and restore the stolen funds. This decision led to the creation of two separate blockchains: Ethereum (ETH), which implemented the fork, and Ethereum Classic (ETC), which continued on the original chain.

The incident also drew the attention of regulatory bodies, particularly the U.S. Securities and Exchange Commission (SEC). Despite The DAO’s origins in Berlin, its global investor base included participants from the United States. The SEC’s mandate is to protect U.S. investors and maintain fair, orderly, and efficient markets. Given that U.S. investors contributed to The DAO’s funding and were affected by the subsequent hack, the SEC had jurisdiction to investigate potential violations of U.S. securities laws. citeturn0search0

Before 2017, the SEC had largely viewed cryptocurrencies like Bitcoin as commodities and refrained from extensive oversight of alternative coins. However, the magnitude of The DAO’s collapse prompted the SEC to reevaluate its stance. In a 21-page investigative report released on July 25, 2017, the SEC concluded that DAO tokens were securities under the Howey Test, stating:

“Investors in The DAO reasonably expected to earn profits from the managerial efforts of others.”Statement by the Divisions of Corporation Finance and Enforcement on the Report of Investigation on The DAO, U.S. Securities and Exchange Commission (July 25, 2017), https://www.sec.gov/newsroom/speeches-statements/corpfin-enforcement-statement-report-investigation-dao.

​The SEC 2017 investigative report on The DAO marked a pivotal moment in regulating digital assets. By concluding that DAO tokens were securities under the Howey Test, the SEC clarified that federal securities laws apply to various digital asset offerings. This determination served as a cautionary notice to U.S. investors and issuers, emphasising the need for compliance with existing securities regulations.

Notably, the SEC did not prohibit Initial Coin Offerings (ICOs) but underscored the importance of adhering to legal requirements to protect investors and maintain market integrity. The report’s impact was profound: in 2018, ICO activity declined by approximately 90% as many projects moved offshore to evade regulatory scrutiny. This situation highlighted a paradox — the SEC had asserted its authority over digital asset offerings but had not yet provided a clear compliance framework, leaving issuers uncertain about how to proceed within the bounds of U.S. law.

Source: © 2025 Digital & Analogue PartnersTezos: The $232 Million Cautionary Tale

In July 2017 — just weeks before the DAO Report — Tezos raised $232 million in Bitcoin and Ether. Marketed as a self-amending “governance blockchain,” it drew global investor interest. But Tezos soon became mired in legal and internal turmoil. A governance rift between founders and the Swiss-based Tezos Foundation triggered class action lawsuits alleging unregistered securities sales and misrepresentations (In re Tezos Sec. Litig., №17-cv-06779 (N.D. Cal. 2017)).

In early 2018, attorney David Silver, representing plaintiffs in one of the lawsuits against Tezos, filed a request under the Freedom of Information Act (FOIA) seeking information from the U.S. Securities and Exchange Commission (SEC) regarding the project. The SEC denied this request, citing Exemption 7(A). Exemption 7(A) of the Freedom of Information Act (FOIA) permits federal agencies to withhold “records or information compiled for law enforcement purposes” if their disclosure “could reasonably be expected to interfere with enforcement proceedings.”5 U.S.C. § 552(b)(7)(A) (2012 & Supp. V 2017). This exemption is often invoked to protect the integrity of ongoing investigations.

The SEC’s refusal to release information fueled speculation that the agency was closely monitoring Tezos and potentially investigating its ICO. However, as of the 2020 settlement, the SEC had not brought public charges against Tezos or its founders. The $25 million settlement addressed the claims of investors who alleged that Tezos had violated securities laws, effectively resolving the private litigation without an admission of liability.

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The DAO Report’s Ripple Effect

The SEC’s 2017 DAO Report reverberated far beyond the blockchain community, rattling Silicon Valley boardrooms, legal firms, and crypto startups. Though the Commission declined to bring enforcement action against The DAO and Tezos, it sent a sharp regulatory signal: digital tokens could be securities, and decentralisation alone would not shield projects from compliance obligations under the Howey test.

The SEC began scrutinising ICOs through the lens of the Howey Test, a standard derived from the Supreme Court case SEC v. W.J. Howey Co., 328 U.S. 293 (1946). The Howey Test determines whether a transaction qualifies as an investment contract (and thus a security) by assessing if it involves:​

1. An investment of money,​
2. In a common enterprise,​
3. With an expectation of profits,​
4. Primarily from the efforts of others.​

Using this test, the SEC determined that numerous ICOs qualify as securities offerings, necessitating adherence to federal securities regulations. In a previous article, we conducted an in-depth analysis of Howey in relation to blockchain assets.

These legal developments had a profound impact on the cryptocurrency community. Projects became more cautious in their fundraising approaches, with many opting for private funding rounds or conducting offerings outside the United States to avoid regulatory scrutiny. The SEC’s enforcement actions underscored the importance of compliance with securities laws, prompting a shift towards more regulated fundraising methods within the crypto industry.​

Source: © 2025 Digital & Analogue PartnersThe SAFT Workaround

By early 2018, the SEC grew increasingly vocal. At a Senate hearing, SEC Chair Jay Clayton warned:

“I have seen lawyers ‘take a token, put it in a box, and call it a consumptive asset.’ That doesn’t work — economic substance over form governs.”
(Jay Clayton, Chairman, SEC, Testimony on Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission Before the S. Comm. on Banking, Hous., & Urban Affs., 115th Cong. (Feb. 6, 2018), as reported by Bloomberg Law, https://www.bloomberglaw.com/.).

Clayton’s remarks clarified that merely labelling a token “utility” would not exempt it from securities regulation. Legal formalism would not override economic reality.

Legal practitioners from firms like Cooley LLP, Perkins Coie, and Debevoise & Plimpton rushed to reframe token offerings to avoid SEC scrutiny. Memos circulated advising startups to exclude U.S. investors entirely or structure offerings under Regulation D exemptions. Drawing inspiration from the Simple Agreement for Future Equity (SAFE) used in traditional startup financing, attorney Marco Santori and his colleagues introduced the Simple Agreement for Future Tokens (SAFT) framework. The SAFT model proposed that developers could sell rights to future tokens to accredited investors, with the tokens to be delivered once the network was functional and the tokens had utility. This approach aimed to align token sales with existing securities laws by ensuring the initial investment contract was with accredited investors, potentially reducing regulatory risks.

The SAFT framework gained traction, with notable projects like Filecoin successfully raising funds using this model. However, other projects, such as Telegram’s TON and Kik’s Kin, faced legal challenges despite employing SAFTs.

The SAFT framework operates on a structured, multi-phase approach:

1. Initial Investment Contract: Developers enter into a SAFT with accredited investors, who provide capital to fund the development of a blockchain-based network or application. This agreement stipulates that investors will receive tokens at a future date once the network becomes operational.
2. Compliance with Securities Laws: Recognising the investment contract as a security, the initial sale is conducted in adherence to U.S. securities regulations, typically under exemptions such as Regulation D. This ensures that the fundraising process remains within legal boundaries.
3. Future Token Distribution: Upon the network’s completion and launch, the previously issued SAFTs will convert, granting investors the agreed-upon tokens. The underlying assumption is that these tokens, now integral to the functioning network, possess inherent utility.
4. Post-Launch Token Status: The framework posits that once the network is functional and the tokens serve a utilitarian purpose, they may not be classified as securities. This distinction alleviates the need for ongoing securities regulation concerning the tokens.

By structuring the initial investment as a security and adhering to established legal frameworks, SAFTs reduce the risk of regulatory violations. This framework provides accredited investors with a legal agreement that outlines their rights and the conditions under which they will receive future tokens, thus enhancing transparency and trust. SAFTs allow developers to secure necessary capital without facing immediate regulatory obstacles, enabling them to concentrate on technological development.

Source: © 2025 Digital & Analogue PartnersTelegram’s TON and the SAFT’s Limitations

SAFTs gained traction as a form of legal arbitrage: startups raised funds through pre-launch token sales to accredited investors, asserting that tokens delivered post-launch were not securities. While this approach was marketed as compliant, the SEC later challenged its logic by treating the entire scheme as a single, integrated offering. Sec. & Exch. Comm’n v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 379 (S.D.N.Y. 2020).

A prominent example of the SAFT’s shortcomings is the SEC v. Telegram case. In 2018, Telegram raised $1.7 billion through SAFT agreements, planning to deliver “Gram” tokens upon launching its Telegram Open Network (TON). The SEC intervened, alleging that the entire arrangement constituted an unregistered securities offering. SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352 (S.D.N.Y. 2020).

On October 11, 2019, just weeks before TON’s anticipated launch, the SEC filed an emergency action to halt the distribution of Gram tokens, alleging that Telegram’s entire scheme constituted an unregistered securities offering in violation of Sections 5(a) and 5(c) of the Securities Act (id. at 361). The SEC argued that:

1. Integrated Offering: The initial SAFT sales and subsequent token distribution were part of a single scheme to distribute Grams publicly on secondary markets.
2. Expectation of Profits: Investors purchased Grams with the expectation of profiting from Telegram’s efforts to develop and promote TON (id. at 379).
3. Underwriters in Disguise: Initial purchasers acted as de facto underwriters who would resell Grams into public markets, effectively conducting an unregistered public offering (id. at 382).

The SEC’s legal position was bolstered by its earlier enforcement actions against ICOs like Munchee and AirToken, where it successfully argued that economic substance — not contractual labels — determines whether a transaction constitutes a securities offering (In re Munchee Inc., SEC Rel. №10445 (Dec. 11, 2017)).

Telegram mounted a robust defense, claiming that its fundraising activities complied with U.S. securities laws and that Grams were not securities under the Howey Test. Its key arguments included:

1. Grams as Commodities: Telegram asserted that Grams were designed as a currency or commodity for use within the TON ecosystem and lacked the characteristics of investment contracts (Telegram, 448 F. Supp. 3d at 360).
2. Regulation D Compliance: The company argued that its SAFT agreements adhered to Regulation D exemptions, limiting sales to accredited investors and avoiding public solicitation (id.).
3. No Public Offering Intent: Telegram emphasised that it had no plans for a public offering of Grams and had imposed lock-up periods on initial purchasers to prevent immediate resale (id. at 371).
4. Jurisdictional Limits: Citing Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), Telegram contended that much of its fundraising occurred outside U.S. jurisdiction and should not be subject to SEC oversight (Telegram, 448 F. Supp. 3d at 374).

On March 24, 2020, Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York granted the SEC’s request for a preliminary injunction, halting the distribution of Gram tokens (id. at 382). Castel rejected Telegram’s arguments, finding that:

1. Economic Reality Prevails: The court held that economic substance — not contractual form — governs securities analysis under Howey. The SAFT sales and subsequent token distribution were inseparable components of a single investment scheme aimed at creating a secondary market for Grams (id. at 379–80).
2. Expectation of Profits: Purchasers reasonably expected profits from Telegram’s efforts to develop TON and drive demand for Grams (id. at 381).
3. Underwriters’ Role: Initial purchasers acted as underwriters who intended to resell Grams into public markets, further supporting the SEC’s claim that this was an unregistered public offering (id. at 382).

Judge Castel’s ruling effectively dismantled the SAFT framework as a regulatory shield, setting a precedent that would reverberate across the blockchain industry. Following the court’s decision, Telegram abandoned its plans to launch TON and settled with the SEC in June 2020 by agreeing to return $1.22 billion to investors and pay an $18.5 million penalty (SEC Press Release №2020–146 (June 26, 2020)). The settlement also required Telegram to notify the SEC before participating in future digital asset offerings for three years (id.).

The collapse of TON marked a turning point in crypto regulation, underscoring the SEC’s willingness to challenge high-profile projects regardless of their size or prominence. The SEC v. Telegram case was a cautionary tale for blockchain entrepreneurs navigating U.S. securities laws.

Source: © 2025 Digital & Analogue PartnersRipple’s Ascent

The SEC’s lawsuit against Ripple Labs in December 2020 marked a pivotal escalation in its campaign to assert jurisdiction over digital assets — a strategy honed through earlier cases like SEC v. Telegram and the Tezos ICO litigation. While the agency had previously targeted smaller projects, Ripple’s status as a $10 billion fintech firm and XRP’s position as a top-five cryptocurrency turned the case into a litmus test for the viability of Howey in governing blockchain-based transactions.

The SEC’s victory in SEC v. Telegram (2020) emboldened its enforcement strategy. By collapsing Telegram’s SAFT sales and token distribution into a single unregistered offering, the agency signalled that technical distinctions between investment contracts and functional tokens would not shield issuers (SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 379–80 (S.D.N.Y. 2020)). This case directly informed the Ripple complaint, where the SEC alleged that XRP — despite functioning as a cross-border payment tool — constituted security due to Ripple’s institutional sales and promotional efforts (SEC v. Ripple Labs, 682 F. Supp. 3d 308, 324 (S.D.N.Y. 2023)).

The timing reflected the SEC’s growing confidence post-Telegram and mounting pressure to address crypto’s systemic risks. By 2020, XRP’s $27 billion market cap and integration into payment systems like MoneyGram positioned it as a high-profile target. The SEC’s complaint mirrored its Tezos and Telegram playbook: allege unregistered securities sales, seek injunctive relief, and leverage settlements to shape industry behaviour. However, Ripple’s decision to litigate — rather than settle — forced a judicial reckoning with Howey’s applicability to liquid, decentralised assets.

Though the Ripple lawsuit predated Gary Gensler’s 2021 appointment as SEC Chair, his tenure intensified the agency’s litigation-centric approach. Gensler inherited a regulatory framework shaped by Jay Clayton’s DAO Report (2017) and Telegram injunction. Still, his public branding of crypto as the “Wild West” and expansion of enforcement targets — from exchanges to staking programs — cemented regulation-by-litigation as the SEC’s de facto strategy (SEC v. Coinbase, 2024 WL 1304037 (S.D.N.Y. 2024)). Under Gensler, the agency appealed Ripple’s partial victory, seeking to overturn Judge Torres’s bifurcated Howey analysis (SEC v. Ripple Labs, №20-cv-10832 (S.D.N.Y. 2023)).

The SEC’s post-TON litigation surge — culminating in Ripple — reflects not a sudden shift under Gensler but rather the institutionalisation of a Clayton-era playbook. Its mixed outcomes highlight the potency and limitations of regulating disruptive technologies through adversarial enforcement. Let us now delve into the legal details of the case.

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SEC v. Ripple Labs: A Legal Chronicle of Crypto’s Defining Battle

On December 22, 2020, the SEC initiated an enforcement action against Ripple Labs Inc. and its executives, Brad Garlinghouse and Christian Larsen, alleging that the company’s XRP token constituted an unregistered security under §5 of the Securities Act of 1933 (SEC v. Ripple Labs, №1:20-cv-10832 (S.D.N.Y. Dec. 22, 2020)). The complaint centred on Ripple’s $1.3 billion in institutional XRP sales since 2013, which the SEC argued met all prongs of the Howey Test (SEC v. W.J. Howey Co., 328 U.S. 293, 298 (1946)): investors provided capital to a common enterprise with profits derived from Ripple’s efforts to build XRP’s utility in cross-border payments. The timing was strategic. Fresh off its victory in SEC v. Telegram (2020), the SEC sought to cement its authority over major cryptocurrencies. XRP, then the third-largest crypto by market cap and integral to Ripple’s partnerships with banks like Santander, presented a high-value target.

Not like TON before Ripple chose to fight and mounted an aggressive defense, arguing:

1. XRP functioned as a decentralised medium of exchange akin to Bitcoin, exempt from securities laws (SEC v. Ripple Labs, 682 F. Supp. 3d 308, 322 (S.D.N.Y. 2023)).

2. The SEC had never classified XRP as a security during its eight years of trading, violating due process (id. at 326).

3. Crypto expert Dr Susan Athey demonstrated that 80% of XRP transactions were unrelated to Ripple’s activities, with prices correlating more closely to Bitcoin (r=0.82) than corporate developments (id. at 324).

Judge Analisa Torres’s summary judgment in SEC v. Ripple Labs exemplified a nuanced, bifurcated approach to crypto assets under U.S. securities law. In her 2023 decision, she ruled that Ripple’s XRP token was security when sold directly to institutional investors but not security when sold in blind transactions on public exchanges or when distributed to employees as compensation. Crucially, Judge Torres applied the Howey test for “investment contracts” to each transaction category, examining the economic reality and totality of circumstances rather than declaring XRP itself a security per se. She emphasised that “XRP, as a digital token, is not in and of itself a “contract, transaction or scheme” embodying the Howey elements; instead, the legal character of XRP depended on how it was sold and to whom. SEC v. Ripple Labs, №1:20-cv-10832 (S.D.N.Y. July 13, 2023. In reaching this result, Judge Torres invoked the Supreme Court’s guidance to interpret the Securities Acts with a “broad brush” in light of the “virtually limitless scope of human ingenuity,” echoing the spirit of the Reves family resemblance test for notes (Reves v. Ernst & Young, 494 U.S. 56 (1990)). While her opinion did not ultimately hinge on classifying XRP as a “note,” the decision’s breadth reflects the influence of both Howey and Reves, underscoring that courts must look past labels to the economic substance of novel instruments.

“The same token could be sold in both securities and non-securities transactions depending on context” (Cryptocurrency vs. The SEC: Sometimes a Security and Sometimes Not, Cornell Undergraduate Law & Society Review).

This bifurcated logic was significant: it marked the first time a court partially sided with a crypto issuer on the securities question, holding that the same token could be sold in securities and non-securities transactions depending on context. SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023). Judge Torres’s ruling carved out a pragmatic middle ground in regulating digital assets by combining a traditional investment-contract analysis with Reves-inspired flexibility.

The Torres decision has raised the question of whether using Howey and Reves in tandem is a novel doctrinal innovation or an extension of existing practice. Historically, most crypto token cases relied solely on the Howey test to determine if a token sale was an investment contract, as tokens rarely resemble the debt instruments scrutinised under Reves. Indeed, earlier landmark cases like SEC v. Telegram focused on investment-contract analysis without any Reves component (SEC v. Telegram Grp. Inc., №1:19-cv-09439 (S.D.N.Y. Mar. 24, 2020). Judge Torres’s approach in Ripple is innovative in that she broadened the analytical lens: her reasoning implicitly acknowledges Reves’ admonition that form should not trump substance, even though XRP was not alleged to be a “note” Reves v. Ernst & Young, 494 U.S. 56 (1990).

Before Ripple, the Howey–Reves combination had been deployed in other crypto-related enforcement actions — notably the SEC’s 2023 case against Terraform Labs Pte Ltd., where the Commission alleged the offering of unregistered securities (SEC v. Terraform Labs Pte Ltd., №1:23-cv-01346 (S.D.N.Y. July 31, 2023). In that action, the SEC explicitly invoked Reves to argue that lending agreements were securities, demonstrating a dual-test strategy: using Reves for instruments bearing note-like characteristics and Howey for equity-like token offerings. SEC v. Terraform Labs Pte, id. However, Judge Torres’s Ripple opinion represents the first judicial application of both doctrines in the crypto-token context. Her decision straddles established jurisprudence and doctrinal innovation by acknowledging Reves’ broad purpose (to capture instruments fulfilling the economic role of securities) alongside the Howey analysis (SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023); Reves v. Ernst & Young, 494 U.S. 56 (1990)). Whether this combined approach becomes a new norm remains to be seen; it provides future courts with a more comprehensive toolkit, even as it blurs the traditional line between investment contracts and other categories of securities.

The Ripple litigation’s five-year trajectory (December 2020 to 2025) reflects a perfect storm of procedural complexity, exhaustive discovery, and broader political undercurrents. The SEC filed suit in December 2020, in the final days of an outgoing administration, and Ripple vowed to fight rather than settle. SEC v. Ripple Labs, Inc., №20-cv-10832 (S.D.N.Y. Dec. 22, 2020). An amended complaint was filed in early 2021, after which the case proceeded through protracted fact discovery (concluding August 2021) and expert discovery (concluding February 2022) (SEC v. Ripple Labs, Inc., №20-cv-10832 (S.D.N.Y. Aug. 31, 2021); SEC v. Ripple Labs, Inc., №20-cv-10832 (S.D.N.Y. Feb. 24, 2022)).

Multiple interim skirmishes slowed the process. In March 2022, Judge Torres denied the individual defendants’ motions to dismiss and rejected the SEC’s motion to strike Ripple’s “fair notice” defense, signalling that thorny due process issues would remain in play. SEC v. Ripple Labs, Inc., №20-cv-10832 (S.D.N.Y. Mar. 11, 2022). These pre-trial battles — including high-profile disputes over internal SEC documents (such as a former official’s speech notes on crypto assets) — consumed considerable time and resources. SEC v. Ripple Labs, Inc., №20-cv-10832 (S.D.N.Y. Sep. 29, 2022). Both sides marshalled extensive evidence regarding XRP’s use and marketing, resulting in voluminous summary judgment filings by September 2022 and a much-anticipated ruling in July 2023. SEC v. Ripple Labs, Inc., №20-cv-10832 (S.D.N.Y. July 13, 2023).

The political environment further contributed to the delays. Under SEC Chair Jay Clayton (who authorised the case in 2020) and his successor Gary Gensler, the Commission showed unwavering resolve to press the case, even as industry pressure mounted (Ripple Labs says US SEC ends appeal over crypto oversight, Reuters, Mar. 13, 2025). The lawsuit became a crucible for the SEC’s crypto enforcement strategy, and any settlement attempts likely faltered on the SEC’s desire for a clear court ruling to guide the nascent industry (Ripple vs SEC Lawsuit Timeline: Key Legal Events and Outcomes, CCN.com). Meanwhile, Ripple leveraged political support and filed numerous amicus briefs from crypto market participants (exchanges, industry groups, and XRP holders), highlighting the case’s wide-ranging implications and perhaps encouraging the court’s careful, time-consuming deliberation (Ripple vs SEC Lawsuit Timeline: Key Legal Events and Outcomes, CCN.com).

Only in late 2023 did the momentum shift: Judge Torres delivered her split decision, then denied the SEC’s bid for an interlocutory appeal in October 2023. SEC v. Ripple Labs, №20-cv-10832 (S.D.N.Y., Oct. 3, 2023). Remedial proceedings stretched into August 2024; Judge Torres imposed a civil fine on Ripple for institutional sales violations (Ripple Labs says US SEC ends appeal over crypto oversight, Reuters). By March 2025 — more than four years after the complaint — the SEC finally ended its appeal, effectively conceding the retail-sales issue and closing the case (Ripple Labs says US SEC ends appeal over crypto oversight, Reuters).

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Strength and Influence of Judge Torres’s Opinion

Notwithstanding the mixed outcome, Judge Torres’s opinion has been widely regarded as a well-reasoned and influential contribution to crypto jurisprudence. Observers praise the ruling’s legal clarity: it meticulously applied each prong of Howey to distinct sets of facts, demonstrating how careful factual analysis can separate compliant transactions from unlawful ones. SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023). Judge Torres’s reasoning is grounded in orthodox securities law principles yet tailored to the realities of digital assets. For instance, her opinion reaffirmed that the subject of a scheme (here, XRP) is not inherently a security — a point sometimes misunderstood in the crypto debate — and that the focus must be on the contract, transaction, or scheme in which the asset is embedded. SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023).

“An investment contract requires an ongoing transactional relationship or promise, not merely an asset floating in the market” (SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023).

Judge Torres drew a principled line when applying the third Howey prong (expectation of profits derived from others’ efforts). She found that sophisticated institutional buyers purchased XRP with explicit promotional inducements from Ripple (expecting Ripple’s entrepreneurial efforts to boost XRP’s value). In contrast, retail buyers on exchanges could not reasonably know if their counterparty was Ripple and, therefore, did not tie their profit expectations to Ripple’s efforts. SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023). This distinction, though controversial, was backed by concrete evidence: Ripple’s private sales involved written contracts, marketing brochures, and direct communications linking XRP’s fortunes to Ripple’s actions (SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023), while the programmatic exchange sales lacked such nexus — as retail buyers received no issuer communications and were essentially trading in the blind market. Id.

The opinion’s measured tone and rigorous analysis have made it a persuasive reference point. It provided a template for how courts might approach crypto token sales with nuance. It signalled to regulators and industry alike that longstanding securities doctrines can adapt to new technology. Judge Torres’s ruling can be considered influential not because it resolved all questions — indeed, it raised new ones — but because it exemplified judicial reasoning that is lucid, fact-specific, and mindful of the broader policy aims of securities law. As a trial court decision, SEC v. Ripple does not establish a binding precedent beyond the parties. Still, it has quickly become a cornerstone of the legal debate and a persuasive authority cited in other major crypto cases (SEC v. Terraform Labs Pte Ltd., №1:23-cv-01346 (S.D.N.Y. July 31, 2023); SEC v. Coinbase, Inc., №1:23-cv-04738 (S.D.N.Y. June 6, 2024).

Beyond the courtroom, the Ripple decision has reverberated within the SEC and shaped the regulatory posture towards various crypto activities, including mining-based cryptocurrencies and stablecoins. One immediate effect of Judge Torres’s reasoning is a tacit acknowledgement that how a token is distributed matters for securities law — a point particularly relevant to mined cryptocurrencies like Bitcoin or Ethereum (pre-sale). These proof-of-work (PoW) coins emerge from decentralised mining rather than any formal sale by a promoter. Under the Ripple court’s logic, such organic distributions lack the specific “contract or scheme” between issuer and investor that Howey requires. On March 20, 2025, the SEC clarified that PoW mining activities do not constitute securities transactions under federal law. The SEC emphasised that PoW mining, which involves validating transactions and securing blockchain networks through computational effort, does not meet the criteria of an “investment contract” under the Howey Test. This applies to major PoW-based cryptocurrencies such as Bitcoin and Litecoin. The SEC clarified that individual miners and mining pools are exempt from securities registration requirements, as their rewards are derived from computational contributions rather than managerial or entrepreneurial efforts by a third party. SEC Report on PoW Mining Tokens, U.S. Securities and Exchange Commission, Statement on Proof-of-Work Mining Activities, March 20, 2025.

The impact on stablecoins is more subtle but equally important. Stablecoins are crypto tokens pegged to assets like the U.S. dollar and designed not to fluctuate in value, meaning investors typically do not purchase them with an expectation of profit from holding the coin. This inherent lack of profit motive has always suggested that most stablecoins do not meet the third prong of Howey (no expectation of profit). On April 4, 2025, the SEC provided guidance on the regulatory status of certain stablecoins, referred to as “Covered Stablecoins.” These are USD-backed tokens designed to maintain a one-to-one peg with the U.S. dollar, supported by fully reserved, low-risk, liquid assets. The SEC concluded that such stablecoins are not securities under federal law because they are primarily used for payments and value storage, not as investment vehicles. The guidance relied on the Reves Test and Howey Test to determine that these stablecoins lack speculative or profit-driven characteristics. However, algorithmic stablecoins and yield-generating tokens remain subject to further scrutiny. SEC Guidance on Stablecoins, U.S. Securities and Exchange Commission, Guidance on Covered Stablecoins, April 4, 2025.

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Global Aftermath of SEC v. Ripple

While not binding outside the United States, SEC v. Ripple Labs, Inc., №1:20-cv-10832 (S.D.N.Y. July 13, 2023), has been closely watched by regulators and courts in other jurisdictions, often serving as a contrasting point to their legal frameworks. In the United Kingdom, crypto-asset approaches diverge significantly from the U.S. securities-law-centric view. The UK Financial Conduct Authority (FCA) and HM Treasury have classified tokens like XRP not as securities but as exchange tokens, a type of unregulated crypto-asset used primarily as a means of exchange or utility (XRP Token is Classified as a Non-Security by the UK Treasury, Blockchain.News). As early as 2021, the UK Treasury’s official guidance grouped XRP with Bitcoin and Ether as unregulated tokens, underscoring that none of these are considered securities under UK law.

European regulators have noted the Ripple decision as part of the global dialogue on crypto regulation. It has been discussed in European policy circles as an example of the U.S. grappling with legal classification without bespoke legislation. While EU officials did not directly incorporate the ruling — given MiCA’s different conceptual framework — they have signalled relief that Europe chose a regulatory route avoiding binary characterisations of tokens as “securities or not”. Id. Other jurisdictions, such as Singapore, Dubai, and Australia, also observed the *Ripple* outcome through the lens of their regimes, which typically involve registration or categorisation of tokens by function (Ripple Bags Dubai License to Offer Crypto Payments in UAE*, Yahoo Finance).

The legacy of SEC v. Ripple Labs promises to shape industry behaviour and regulatory strategy concretely. Enforcement strategies by the SEC are already adapting. The Commission will likely draft future complaints with an eye to Ripple’s analytical framework. For crypto ventures and token issuers, the Ripple case prompts rethinking how tokens are initially sold and how projects are structured. Start-ups are increasingly cautious about conducting public token sales that could be seen as capital-raising from retail investors (Ripple vs SEC: How XRP’s Court Victory is Shaping the Future of Cryptocurrency, Ecos.AM). Instead, many are exploring alternative distribution methods: airdropping tokens to users, rewarding developers with tokens for contributions, or selling tokens only to accredited investors before allowing secondary trading — all to fall on the “non-security” side of the line for any public trading that follows.

The distinction drawn in Ripple suggests that if a project avoids direct fundraising from the general public and any public trading of its token is sufficiently disassociated from the project’s promotional efforts, the token may evade security status. Finally, the Ripple decision has added urgency to calls for legislative reform. The ambiguity and split opinions in courts make clear that relying on 1930s-era statutory concepts like “investment contract” to regulate 21st-century digital assets is fraught with uncertainty.

This article was written by Yuriy Brisov of Digital & Analogue Partners. Visit dna.partners to learn more about our team and the services.Be digital, be analogue, be with us!

Ripple’s Labyrinth was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.