Alluding to the spate of controversies that have beset the project, Ripple CEO, Brad Garlinghouse, has argued that Ripple’s “transparency has opened us up to attack.”

In an interview for the Off the Chain podcast hosted by Morgan Creek Digital Assets co-founder Anthony Pompliano on Oct. 9, Garlinghouse said there is a “bunch of misinformation” out there, but claimed that this is in part because Ripple is “ten or a hundred times more transparent than anyone in the crypto community.” He said:

“Our transparency has opened us up to attack […] Ripple has tried to lead by example.”

Pompliano revealed that by far the most listener questions related to the high-profile controversy over Ripple’s handling of XRP token sales, to which the CEO reiterated his earlier reassurances that the firm would choose to dump tokens and depreciate XRP’s value given that it is “the most interested party in the success and health of the Ripple ecosystem. We own a lot of XRP.” He outlined how Ripple manages its XRP token holdings, noting that the company had created 55 escrows, each containing 1 billion XRP that become unlocked once a month.

Once released, he said Ripple returns 80% of the XRP into newly-created escrows for the future. He emphasized that while Ripple may own the escrows, they have cryptographic signage on their contracts, meaning that the firm can’t open them at its behest. With the remaining released XRP, Garlinghouse said Ripple either sells the tokens programmatically or over-the-counter (OTC) to institutional clients wanting exposure to XRP. Now that the market has become more liquid, however, he said these OTC sales are declining and Ripple often refers to such clients elsewhere. Overall, Garlinghouse estimated that Ripple sells XRP at 10 basis points of daily market volume — i.e. 99.9% of XRP volume is not connected to Ripple.

Garlinghouse also claimed that Ripple is the “only example of crypto and blockchain being used at scale, period.” While he conceded that he was himself long on Bitcoin — “it is working, it is scaled” — he said that when it comes to blockchain enterprise solutions, Ripple is the only project out there that has passed experimentation and moved onto scaled implementation. In a sign, perhaps, of the prevalence of Ripple-related controversies, Garlinghouse’s discussion of the relation between Bitcoin and XRP circled back to another contentious issue. The CEO noted that several former Bitcoin engineers, as well as Ripple founders, were involved in the creation of the XRP ledger, yet underscored that “the XRP ledger was created before the company Ripple existed.”

As reported, community members have previously taken the company to task for ostensibly attempting to obfuscate the nature of its relationship to XRP. Cory Johnson — a former Bloomberg TV anchor who worked roughly a year as Ripple’s chief markets strategist — has come under fire recently for his controversial analogy that “Ripple’s relationship to XRP is akin [to] Chevron’s relationship to oil.” Garlinghouse himself had previously used the analogy in an argument against yet another controversy: XRP’s possible security classification. “Exxon owns a lot of oil,” he noted. “That doesn’t make oil a security.”

The discourse surrounding the securities laws and the treatment of digital assets continues to draw debate among market participants, regulators, and legal practitioners. One of the most high-profile targets in this ongoing debate is XRP, a digital asset issued by Ripple Labs Inc. Despite voluminous public examination, regulators have not reached a consensus on the appropriate treatment for this widely traded digital asset.

Amid vociferous debate and clamoring from market participants for clear, concise and practical guidance from the United States Securities and Exchange Commission (SEC), the commission’s approach to the digital asset space to date has been notably sparse and cautious. However, we are currently enjoying a flurry of recent guidance. In April of this year, the SEC published the “Framework for Investment Contract Analysis of Digital Assets,” drawing heavily on a June 14, 2018, speech by William Hinman (the director of the corporate finance division of the SEC) on digital asset transactions. This suggests some hope that the SEC’s reluctance to embrace and promulgate digital asset guidance may be waning. This historical reluctance is made all the more apparent when compared with the vigor with which the Commodity Futures Trading Commission (CTFC) and the Financial Crimes Enforcement Network (FinCEN) have waded into the digital asset discussion, publishing numerous guides, interpretive letters, and proposed rules. Nevertheless, a pending class-action lawsuit against Ripple has the potential to offer a glimmer of regulatory clarity concerning the fundamental question that continues to disorder the digital asset ecosystem: When is digital asset security?

The Ripple lawsuit is slowly winding its way through the federal court system. Owing largely to procedural jostling, the plaintiffs in the case submitted an amended complaint on Aug. 5, to which Ripple responded on Sept. 19 with a motion to dismiss. 

Among other things, the plaintiffs allege that Ripple has raised hundreds of millions of dollars through the sale of XRP — an asset that the plaintiffs allege is unregistered security — to retail investors in violation of the registration provisions of federal and state securities laws. In addition to claiming that XRP constitutes a security under California law, the plaintiffs in the Ripple case argue that XRP is a security under the SEC’s long-standing “investment contract” analysis promulgated under 1946 case of the SEC v. W.J. Howey Co., 328 U.S. 293 — i.e., the Howey test). Whether any asset (including a digital asset) constitutes an investment contract — and thus a security under the Howey test — is determined by the satisfaction of the following four elements: 1) an investment of money, 2) in a common enterprise, 3) with a reasonable expectation of profits, 4) to be derived from the efforts of others. The plaintiffs, in asserting their case, borrow heavily from the aforementioned SEC framework, quoting from it extensively. 

The SEC framework, mentioned above, suggests, perhaps rather evidently, that “the first prong of the Howey test is typically satisfied in an offer and sale of a digital asset because the digital asset is purchased or otherwise acquired in an exchange for value.” The plaintiffs echo this sentiment and claim that XRP clearly satisfies the first prong of the Howey test. With respect to the second prong of the Howey test, the plaintiffs argue that purchasers of XRP have clearly invested in a “common enterprise,” acknowledging Ripple’s own concession that it “sells XRP to fund its operations and promote the network.”

Ripple is one of the most successful blockchain development companies around, and one David Schwartz is the company’s CTO. However, there have been some concerns within the crypto community concerning XRP’s real utility. Also, some people have argued that XRP may not be as decentralized as presented owning to the fact that it was created by a single company.

In a tweet, Ripple’s CTO David Schwartz argued that a lot of people talk about XRP (the crypto) and XRP Ledger and their use cases while they ignore the reasons why many other entities are adopting the technology. David shared a link to a post on Ripple’s website where he set out to explain various intricate facts about XRP and the XRP Ledger.

Shun The Fiefdoms

First off, David highlighted the need for everyone within the crypto space to shun the divisionist mentality that promotes each project by itself without accounting for the input of the entire crypto and blockchain community. Indeed, it’s these small fiefdoms that have hindered the industry’s growth and potential for years.

According to David, the industry is much better-promoting interoperability among the various different blockchain projects to better tap into the power of decentralization and help solve existing problems. In that sense, it’s noteworthy that Ripple’s XRP Ledger supports such interoperability among crypto networks.

No Censorship

Going on, the CTO explained the inner design and workings of the XRP Ledger, adding that the Ledger is designed to enforce total decentralization, with a strong focus on enforcing a “no censorship” policy.

In this case, David explained, no single resource user can make central decisions on which processes get prioritized. No user can change or rescind a transaction once it is added to the Ledger.

XRP And XRP Ledger Are Valuable

As already known within the industry, XRP provides fast and highly secure payments processing network. Some banks are already using XRP as a base currency for cross-border transactions, utilizing its high-liquidity support.

In David Schwartz view, both XRP and XRP Ledger are valuable both in the present and the future. For example, there are various companies currently utilizing technology to develop more use cases. The projects include internet content monetization (by Coil), XRPTipbot, Puma Browser, among others.