Interestingly, the reason why the court ruled that Ripple’s sale of XRP tokens through exchanges and programs does not constitute an investment contract is because programmatic sales do not meet the third prong of the Howey test, which is a reasonable expectation of profits.
The court believed that institutional buyers reasonably expected that Ripple would use the funds obtained from the sale to improve the XRP ecosystem, thereby increasing the price of XRP. However, programmatic buyers cannot reasonably expect the same result. “Ripple’s programmatic sales are blind buy-sell transactions, and programmatic buyers do not know whether their money is flowing to XRP or any other seller of XRP. Since 2017, Ripple’s programmatic sales accounted for less than 1% of global XRP trading volume. Therefore, the vast majority of individuals who purchased XRP from digital asset exchanges did not invest in Ripple. Institutional buyers purchase XRP directly from Ripple based on contracts, but the economic reality is that programmatic buyers and buyers on the secondary market (i.e. exchanges) do not know who their money is going to.”
(Content about programmatic sales)
Ultimately, the court ruled that Ripple’s programmatic sale of XRP does not constitute an investment contract and does not violate securities laws. Furthermore, the court also ruled that the use of XRP for investments, bounties, gifts, and transfers to executives of others does not constitute an investment contract and does not violate securities laws.
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As the culmination of the maritime law system, the XRP ruling in the United States also provides precedents for other cryptocurrency project cases in the future. In particular, the ruling that the sale of tokens through programming is not a violation of securities law also directly proves that the opening of token trading on exchanges does not violate securities law, but it is best not to sell tokens through ICO/IEO and other forms, as this may be considered to meet the conditions for institutional sales. As for the follow-up developments of the Ripple case, the Odaily Planet Daily will continue to follow.