The US Securities and Exchange Commission (SEC) is reportedly considering whether XRP qualifies as a commodity rather than a security in its ongoing settlement negotiations with Ripple. 

According to journalist Charles Gasparino, the SEC is weighing similarities between XRP and Ethereum (ETH). The agency’s current administration reportedly considers Ethereum a commodity despite its initial issuance through an initial coin offering (ICO). 

Gaspatino said:

“ETH was obviously issued as an ICO; its characteristics on issuance was no different than XRP — both used to finance the buildout of a platform, yet Ripple got sued and Ethereum didn’t because ETH had since morphed into a commodity. What is being discussed now is the comparison between the 2 cryptos.”

The commission’s evaluation of XRP’s trading utility and market function could be crucial in determining the final terms of its lawsuit against Ripple, which could result in a potential settlement.

The SEC’s lawsuit against Ripple, filed in December 2020, alleged that the company conducted an unregistered securities offering through the sale of XRP. 

However, in August 2023, US District Judge Analisa Torres issued a pivotal ruling that differentiated between Ripple’s institutional and retail sales. The court determined that while institutional sales of XRP constituted investment contracts and thus violated securities laws, secondary market sales to retail investors did not qualify as unregistered securities offerings. 

As a result, the ruling imposed a $125 million penalty on Ripple and issued a permanent injunction restricting institutional sales of XRP.

Potential settlement

Recent reports suggest the case is in its final stages of resolution, with discussions focused on securing terms that reflect evolving regulatory perspectives on crypto. 

Ripple’s legal team is allegedly pushing for reduced penalties, arguing that an implicit admission of wrongdoing conflicts with the SEC’s shifting stance on crypto enforcement.

The company contends that if the SEC is reconsidering the regulatory classification of digital assets, its settlement terms should align with this evolving framework.

Attorney James Murphy, known as MetaLawMan, suggested that the SEC would have accepted a settlement to drop appeals and collect the $125 million penalty “in a heartbeat.”

However, this outcome may not be favorable for Ripple, particularly if the company intends to pursue a future exempt securities offering or an initial public offering.

The SEC’s deliberations on XRP’s classification reflect broader uncertainties in crypto regulation. If the agency recognizes XRP as a commodity, it could set a precedent for other crypto facing regulatory scrutiny, such as Solana (SOL) and Cardano (ADA).

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