Whether XRP, the native cryptocurrency of the cross-border payments company, Ripple qualifies as security under U.S laws has been a long-standing debate between the company and its investors.
For the basics, the Crypto Rating Council announced on Monday by exchange firm Coinbase, comprises of legal and industry experts representing several leading U.S crypto businesses including Grayscale Investments, Circle, Kraken, Bittrex, and Genesis Capital among others.
The new member-operated organization was reportedly introduced to enable market participants who trade or support crypto assets on their platform to comply with U.S. federal securities laws.
In that regard, the organization published its first pair of ratings which although not legally binding, sought to clarify which cryptocurrencies qualify as securities under a guideline issued by the U.S Securities and Exchange Commission (SEC) earlier this year.
After reviewing Ripple’s XRP, using a points-based rating system reportedly "centered on a set of several dozen, yes/no factual questions" provided by the SEC, the council conceded that the XRP token is likely ‘security.’
The Council’s analytical framework purportedly results in a score between 1 and 5, where a score of 1 means that the reviewed asset has few or no characteristics consistent with traditional regulated security while a higher score means otherwise.
On that scale, Ripple’s XRP scored a high 4.0 rating based on the framework, which further revealed why the asset is likely a security under U.S laws.
It notably pinpointed, the usage of securities-like language, the sale of tokens or token interests before the existence of token utility, and the marketing of the token as an opportunity to earn profits as reasons while XRP could easily be labeled a ‘security.’
Meanwhile, time will now tell whether the industry-made rating will have any effect on the ongoing lawsuit between Ripple and investors who also cited the SEC guidance as revealing that the token is a ‘security.’