Ripple Win In SEC Lawsuit May Cause Change In Howey Test

Crypto investors are eagerly awaiting the summary judgment of the SEC’s lawsuit against Ripple. The US Southern District of New York will announce its verdict, and it could have an impact on various aspects of the crypto industry. At the same time, it’s likely that a verdict may lead to some upgrades on the regular analysis tools that authorities use. 

What Are The Chances of SEC Winning?

Ripple is up against the United States Securities and Exchange Commission, which has won several legal battles against different crypto firms. However, Jeremy Hogan, a pro-Ripple crypto lawyer, predicts that Ripple has a higher chance of winning. That is, if the SEC decides to play fair.

Ripple’s main argument is that for something to be a security, there needs to be a contract between two parties. This is even proven by the Howey Test, which acts as the basis of the SEC’s argument. Even so, Hogan spotted that many of the cases cited by the SEC didn’t have a formal agreement.

To make matters worse, the agency has even had successful cases when there was an absence of an investment contract. This could be bad news for Ripple.

How Ripple Can Score a Win Against The SEC

According to a detailed Twitter thread by attorney Jeremy Hogan, the Ripple briefs mention enough detail for the judge to rule in their favor. Nevertheless, it depends on the aspect of decentralization.

Conventional purchases require a contract since they’re drawn up by centralized entities. Hogan believes that it’s why most crypto companies lost against the SEC. Traditionally, centralized sellers have been the only entities to sell securities.

The main difference, in this case, is that it makes financial sense to purchase crypto for the sake of decentralization. That’s because no single entity owns the whole network. Therefore, it makes sense for an investor to purchase XRP tokens without drawing up a contract.

Based on Hogan’s explanation, this is a key differentiator. And if the judge can understand this argument, Ripple is likely to win the case.

A Potential Counterargument

Of course, it’s important to consider the possibility of a counterargument, which is that XRP isn’t decentralized at all. Rather, it’s decentralized because Ripple controls the supply. Ripple Labs kept half of the overall XRP supply in escrow, releasing them based on their own schedule.

This is in contrast to the total supply of Bitcoin, which runs on a proof-of-work model. Even Ethereum, with its proof-of-stake model, allows for greater decentralization. Considering this aspect, a winning strategy for Ripple would include discussing XRP’s use cases. The XRP ledger can be used by financial institutions worldwide. This makes it a cross-border payment system as opposed to security.

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