Ripple Urges SEC to Clarify Staking, Yield Mechanisms as Non-Securities

Ripple has recently submitted a formal response to the Securities and Exchange Commission (SEC), urging the agency to clarify its stance on staking and yield mechanisms. Ripple argued that these activities, particularly those operating on public, permissionless blockchains, should not be classified as securities. The company emphasized that staking and yield programs do not involve an identifiable issuer or counterparty making investment promises, and thus should fall outside the SEC's regulatory scope.

Ripple's submission was in response to a public call by the SEC for comments on the security status of crypto assets. The company called for the SEC’s Crypto Task Force to base its actions on existing law, avoid overly complex interpretations, and promote regulatory clarity. Ripple stated that the SEC can only regulate securities as defined in the Securities Act of 1933 and the Exchange Act of 1934, and any attempt to expand that authority without Congressional action would exceed the agency’s legal bounds.

Ripple also challenged the previous administration’s approach to applying the Howey test, noting that speculative trading and token value discussions were incorrectly used to define investment contracts. The company urged the SEC to avoid misusing legal tests to claim jurisdiction over transactions that do not involve securities. This move comes just days after the SEC officially dropped its long-standing lawsuit against Ripple, marking a major turning point for the crypto industry.

In its filing, Ripple called for the use of traditional legal terms, such as “investment contract,” when classifying digital assets. The company argued that a valid investment contract requires a clear, enforceable agreement between parties, including an expectation of profit generated through the actions of a counterparty. Ripple warned against expanding the definition of securities to include digital assets without a contractual promise, stating that simply selling a token should not be treated as a capital raise or investment contract. The company asked the regulator to focus on straightforward applications of existing legal standards.

Ripple also addressed staking mechanisms on decentralized networks, arguing that these systems do not meet the definition of a securities offering. The company emphasized that staking rewards are often generated by protocols through algorithmic rules, not through the managerial efforts of a third party. Ripple asked the SEC to confirm that such yield-generating activities do not require securities registration, as these arrangements lack an identifiable issuer or counterparty making investment promises.

The company concluded that clear, limited, and legally grounded guidance would support market participants. This development underscores Ripple's commitment to promoting regulatory clarity and consistency in the crypto industry, aiming to foster a more predictable and stable environment for digital asset transactions.