Crowdfund Insider recently caught up with Kadan Stadelmann, a blockchain developer, operations security professional, and Komodo Platform’s CTO.
As a side note, Komodo, a blockchain interoperability and atomic swap technology leader, recently rebranded its flagship end-user application from “AtomicDEX” to “Komodo Wallet” and its “AtomicDEX API” to “Komodo DeFi Framework.”
Komodo is an accessible everyday blockchain technology. The Komodo DeFi Framework consists of two APIs, the Wallet API and DEX API, offering developers a comprehensive solution to launch DeFi applications such as non-custodial wallets, cross-chain DEXs, IDO portals, and all-in-one solutions. All of Komodo’s products will now fall under a new unified brand umbrella called “Komodo SDK.”
Our conversation with Kadan Stadelmann is shared below.
Crowdfund Insider: What is the latest In the Ripple v. SEC lawsuit?
Kadan Stadelmann: In the Ripple v. SEC legal battle, both Ripple and the SEC are required to complete their remedies-related discovery by February 12, 2024. The SEC has until mid-March to submit any briefs describing the remedies it seeks. Ripple will have thirty days to file objections. The SEC then receives one last response to Ripple’s objection by the end of April. The main item up for review is Ripple’s $770 million fine from July 13 for an unregistered securities offering.
The U.S. The Securities and Exchange Commission (SEC) has a closed-door meeting scheduled for Thursday Nov. 30. Investors don’t know what to expect out of this private meeting.
In November, Brad Garlinghouse spoke during a fireside chat at the 2023 DC Tech Week. “The SEC has lost on everything that matters,” he remarked.
Brad Garlinghouse Interview, Full video.
DC Fintech
(November 2023, (23 minutes) #XRP #RippleXRP pic.twitter.com/bv7lIUuo56
— 𝙈𝙚𝙩𝙖𝙈𝙖𝙣 𝙓 ™ (@MetaMan_X) November 22, 2023
Garlinghouse said that if the SEC decides to not pursue an appeal, the case would be over. If the SEC pursues further, Ripple would bring the case to the U.S. Supreme Court, where the CEO believes the regulator would lose. Garlinghouse notes how the judge in the Grayscale v SEC case determined SEC had acted “arbitrarily and capriciously,” potentially suggesting the SEC had deprived Ripple of its rights.
Crowdfund Insider: How did Ripple and the SEC end up here?
Kadan Stadelmann: Ripple and the SEC ended up in this position after a watershed ruling, New York Second District Court Judge Analisa Torres shook the financial world by ruling in the SEC vs. Ripple case that secondary market sales are not securities transactions, lending some much needed regulatory clarity to the crypto industry.
The ruling is a big win for holders of XRP. Judge Torres reasoned that since retail consumers lacked direct engagement with Ripple, they could not enter into an investment contract with the distributed ledger company based in San Francisco.
XRP holders who bought the token on secondary markets bought XRP for, presumably, speculative reasons, which is not sufficient enough to establish an investment contract covered by securities laws. They were, therefore, ruled by Judge Torress to be blind bid/ask transactions.
According to the decision, the SEC could not say for sure speculative investors had “a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” They were instead categorized as “blind bid/ask transactions,” wherein buyers “could not have known if their payments of money went to Ripple or any other seller of XRP.”
Ripple’s paying of employees in XRP was also not determined to be an investment contract because there was no investment of capital. Founders’ token sales were also not deemed to be securities violations.
Crowdfund Insider: Was Ripple Found Guilty Of Anything?
Kadan Stadelmann: Judge Toress did conclude Ripple engaged in $780 million worth of unregistered securities transactions. The court noted that institutional buyers have the means and ability to understand Ripple’s proposition. Certain actions by Ripple, therefore, could potentially render institutional sales an investment contract. For instance, Ripple early on created a “deep dive” brochure for institutional investors, which the Court flagged as a factor in its decision regarding Ripple’s early institutional sales. The court flagged comments by Ripple executives.
“In their sales contract,” Judge Torres writes in her landmark decision, “some institutional buyers agreed to lock up provisions or resale restrictions based on XRP’s trading volume.” She also wrote that “a rational economic actor would not agree to freeze millions of dollars if the purchaser’s intent was to obtain a substitute for fiat currency.”
Crowdfund Insider: What’s next for Ripple v. SEC?
Kadan Stadelmann: Neither the SEC nor Ripple seems eager to settle this case, as each has a lot on the line. The SEC and Ripple are likely to appeal instead those aspects of the ruling with which they disagree. If neither party moves for the case to be certified for an interlocutory appeal, a trial would then take place.
Although the ruling has largely been lauded as a win for Ripple and the crypto industry as a whole, projects with tokens should be cautioned that the ruling does describe what would represent an investment contract, putting many crypto companies and projects at risk of being sued over their own institutional sales than the initial jubilation would lead one to believe.
For now, Judge Torres’ ruling, albeit only one case in the Southern District of New York, will prove influential in other US court cases. The law of the land presently is that XRP is not inherently a security during programmatic sales from the company to exchanges.