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Ripple’s XRP ventures into tokenization, SEC Gensler warns of security issue: “Make no mistake”

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“Make no mistake: it doesn’t matter if it’s a stock token, a fixed-value token backed by a stock, or any other hypothetical product that provides artificial exposure to the underlying security.”

Gary Gensler

Gary Gensler, Chairman of the Securities and Exchange Commission, spoke about security-based swaps before the American Bar Association’s Derivatives and Futures Law Committee.

He began by noting, “I do not speak on behalf of my fellow commissioners or SEC staff.” That short sentence is necessary now as the agency prepares to face the dismissal of former SEC Director William Hinman for a speech he gave about the nature of ether — “not a security” — in 2018.

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The SEC chief spoke about security-based swaps in the wake of the Archegos collapse and the Securities and Exchange Commission’s completion of the implementation of derivatives oversight in the United States, eleven years after Dodd-Frank.

At the end of the speech, Mr. Gensler mentioned the intersection of security-based and fintech-based trade-offs, including in relation to crypto assets.

“There are initiatives by a number of platforms to offer crypto tokens or other products that are priced from the value of securities and act like derivatives,” said the SEC president.

“Make no mistake: it doesn’t matter if it’s a stock token, a fixed-value token backed by securities, or any other virtual product that provides artificial exposure to the underlying securities. These platforms – whether in decentralized or centralized finance – are implicated in securities laws.” It must operate within our stock system.

“If these are security-based swaps, the other rules I mentioned earlier, such as the trade reporting rules, will apply to them. Thereafter, any offer or sale of retail participants must be registered under the Securities Act of 1933 and enforced on the stock exchange. national finance,” he added.

The Securities and Exchange Commission (SEC) has already filed complaints against the retail offering of security-based exchanges and is likely to charge more blockchain companies in the near future.

FinanceFeeds recently covered the phenomenon of asset tokenization and named Binance as one of the leading companies already offering such products, having started with a tokenized version of Tesla Shares (TSLA) as the operator aims to allow non-US-based users to trade the instrument and many more after that.

Binance, among a growing number of companies, could make sense for bypassing the regulatory framework in the United States and other jurisdictions. The backlash is what we see today: a global crackdown on Binance.

Ripple has also ventured into asset transfers using the popular XRP Ledger, RippleNet General Manager Asheesh Birla announced earlier this month.

“Tokens are changing how people buy, sell, track and manage assets – everything from art and real estate to intellectual property, stocks and supply chain goods. Indeed, the World Economic Forum predicts that 10% of global GDP will be converted to tokens by 2027. “.

“We are expanding from a cross-border payments network into a token service platform that brings crypto capabilities to the enterprise and prepares it for a future where crypto is front and center. RippleNet was initially created to solve the challenges of speed, cost and transparency in cross-border payments for those who are in short supply. severe financial services by the financial system as a whole.”

Progressive crypto regulation in the Asia Pacific region is likely where Ripple will find momentum for its new product, but there is no shortage of clarity regarding which blockchain-powered products provide exposure to the underlying securities: they are mired in US securities laws. SEC President Gary Gensler made it very clear.

The lack of clarity has been a very serious problem within the US crypto ecosystem. So much so that Securities and Exchange Commissions Hester Pearce and Elad Roesman this week made public statements acknowledging it — “a gift from heaven,” attorney Jeremy Hogan said.

An acknowledgment of lack of clarity from senior SEC officials will be used by Ripple and individual defendants to support its fourth affirmative defense and motion to dismiss the case, respectively.

The bombshell comes well-timed for Ripple’s lawyers, who will be impeaching former SEC director William Henman on July 27 in order to further bolster his fair warning defense.

The following day, July 28, is the deadline for a response requested from SEC Chairman, Gary Gensler, to Senator Elizabeth Warren. It requested information on “the regulator’s authority to properly regulate cryptocurrency exchanges and determine whether Congress needs to act to ensure that the SEC has the appropriate authority to fill in the gaps in regulation.”

This letter also sent shock waves of speculation about what could be considered a coordinated power game to beat the CFTC.

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