Bill Morgan, a lawyer representing Ripple, has recently tweeted about the ongoing SEC lawsuit against Ripple, stating that the company’s defense does not depend on the degree of decentralization of the XRP Ledger (XRPL) but rather on the application of the Howey test.
Morgan’s tweet was a response to CyberCapital Founder & CIO Justin Bons, who had accused Ripple executives of falsely claiming that Ripple’s token is decentralized and permissionless.
Bons argued that Ripple’s claim is unfounded, as the XRP consensus mechanism is based on Unique Node Lists (UNLs), which centralized parties, including the XRP Foundation, control.
The UNLs determine which nodes can participate in the consensus process, and nodes that are not on the list are considered untrusted and cannot participate. While users can modify the UNLs, there is a risk of being kicked off the network if there is insufficient overlap with the rest of the network.
Bons also argued that XRP is not a cryptocurrency, as it is not based on proof of work or proof of stake. Instead, he described XRP as a form of proof of authority, as trust underpins the system rather than stake or work.
He suggested that the XRP community can pressure the XRP Foundation to change its approach to UNLs through honest centralization or decentralization. On that, Morgan argued that the relevance of decentralization to the application of the legal test is yet to be decided.
He also noted that SEC Chairman Gary Gensler had been increasingly viewing staking and rewards as signs of security, which may have implications for Ethereum post-Merge.
XRP Community Debates The Relevance Of Decentralization In SEC Lawsuit
The Twitter thread continued with community members debating the relevance of various factors to the case. Morgan clarified that he was specifically referring to the issue of decentralization and not trying to summarize every issue.
He acknowledged that there are many factual and legal issues at play, such as the fair notice defense. Some members argued that faithful allegiance to the law, particularly the Howey test, would prevent XRP from being deemed a security.
However, others felt that new guidelines need to be implemented to include decentralization when promoting a token or coin.
The outcome of the SEC lawsuit against Ripple remains uncertain, and it is unclear how the issue of decentralization will ultimately factor into the decision. However, the ongoing Twitter debate shows that there are differing views on the matter within the crypto community.
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