The debate over whether XRP qualifies as a security has reignited, with renewed calls urging Coinbase to relist the digital asset. These calls gained momentum following recent legal commentary from Paul Grewal, Chief Legal Officer at Coinbase, who publicly aligned with attorney John E. Deaton’s interpretation of what constitutes an investment contract under U.S. securities law.
Grewal’s remarks have sparked widespread discussion in the crypto community, particularly as they reinforce a growing legal argument: secondary market transactions of digital assets do not meet the definition of investment contracts, and therefore should not be classified as securities.
This evolving legal perspective could have significant implications—not just for XRP, but for the broader digital asset ecosystem.
The Legal Case Against Classifying XRP as a Security
At the heart of the debate is the U.S. Securities Act of 1933 and the landmark SEC v. Howey (1946) Supreme Court decision, which established the four-part "Howey Test" for determining whether a transaction qualifies as an investment contract.
According to this test, an investment contract exists when:
- There is an investment of money
- In a common enterprise
- With an expectation of profit
- Derived from the efforts of others
Paul Grewal emphasized that for a transaction to qualify as an investment contract, both “investment” and “contract” must be present—terms defined by Congress and interpreted by the judiciary. He argues that secondary sales of digital assets, such as trading XRP on exchanges, lack both elements.
“Mr. Deaton is exactly right. ‘Investment contracts’ must include both ‘investment’ and ‘contracts’ as those terms are set out by Congress and interpreted by the Supreme Court. Neither is present when it comes to secondary sales of digital assets.”
This statement, originally posted by Grewal on social media, underscores Coinbase’s long-standing position: digital assets traded on secondary markets are not securities, even if they were initially sold in a way that might resemble one.
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Why Secondary Sales Matter
A secondary sale occurs when a digital asset is bought or sold between two private parties after its initial issuance—much like trading stocks on the open market. In such cases, the original issuer (e.g., Ripple Labs for XRP) is no longer involved.
Legal experts like Deaton argue that once a digital asset enters the secondary market, it transforms in nature. The buyer is no longer investing in a centralized project with expectations of profit based on third-party efforts. Instead, they are engaging in peer-to-peer value exchange—more akin to currency or commodity trading than securities investment.
This distinction is crucial. If regulators conflate initial sales with ongoing secondary trading, it could set a dangerous precedent—potentially classifying Bitcoin, Ethereum, and hundreds of other widely used tokens as securities simply because of how they were first distributed.
Coinbase’s Amicus Brief and Its Broader Implications
Grewal’s comments echo arguments made in Coinbase’s amicus brief filed on March 13 in the SEC’s insider trading case against former employee Ishan Wahi. While Coinbase did not defend Wahi’s actions (he pleaded guilty), the exchange used the opportunity to clarify its position on what constitutes a security.
The brief asserts that the digital assets involved in Wahi’s case were not securities, reinforcing Coinbase’s policy: “Coinbase doesn’t list securities.” This stance signals a firm commitment to regulatory compliance while also advocating for clearer definitions in crypto law.
Importantly, this legal consistency strengthens the case for relisting XRP. If Coinbase maintains that secondary trading does not create securities, then delisting XRP solely due to the SEC’s allegations—without a final court ruling declaring it a security—appears increasingly inconsistent.
John Deaton’s Role in the XRP Legal Battle
Attorney John E. Deaton has emerged as a key voice representing over 70,000 XRP holders in the ongoing SEC vs. Ripple litigation. As an amicus curiae (friend of the court), he has repeatedly clarified misconceptions about digital assets and securities law.
Deaton points out that the Securities Act of 1933 predates digital technology and never mentions blockchain or crypto assets. Therefore, applying it directly to decentralized tokens requires judicial interpretation—not assumption.
He acknowledges that some digital assets may have been offered as part of investment contracts during initial sales (e.g., ICOs), but stresses that how something is sold does not define what it inherently is. For example:
- XRP may have been sold to institutional investors under agreements resembling securities
- ETH was distributed via a crowdfunding campaign
Yet today, both function as decentralized network fuels—not equity-backed investments.
Thus, Deaton argues, neither XRP nor ETH should be categorically labeled as securities, especially in their current use cases.
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FAQs: Addressing Common Questions About XRP and Securities
Q: Did the SEC win its case against Ripple?
A: No. In July 2023, Judge Analisa Torres ruled that Ripple’s programmatic sales of XRP were not securities, though institutional sales with contractual expectations were. This partial victory strengthened arguments that XRP is not inherently a security.
Q: Why hasn’t Coinbase relisted XRP yet?
A: Even if Ripple wins definitively, Coinbase has stated it will conduct its own legal review before relisting. Grewal previously noted that compliance assessments take time—especially given potential regulatory uncertainty.
Q: Can a digital asset be both a security and not a security?
A: Yes—under U.S. law, context matters. The same asset might be sold as a security in one scenario (e.g., private placement with profit promises) but traded as a commodity later. This concept, known as the Howey context test, allows for functional evolution.
Q: What would relisting XRP mean for Coinbase users?
A: It would restore access to one of the top digital assets by market cap, improve liquidity, and signal stronger confidence in U.S. crypto regulatory clarity.
Q: Is XRP safe to trade on other exchanges?
A: Yes. Numerous global platforms—including Binance, Kraken, and Bitstamp—have continued listing XRP throughout the lawsuit. Their compliance teams assess local regulations independently.
Q: Could Coinbase face legal risk by relisting XRP?
A: Risk exists but appears limited post-Ripple ruling. With increasing legal precedent distinguishing between distribution methods and asset classification, exchanges have stronger grounds for listing decisions.
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The Path Forward for XRP and U.S. Crypto Policy
The renewed calls for Coinbase to relist XRP reflect more than market demand—they highlight a growing demand for legal consistency in crypto regulation.
As industry leaders like Grewal and Deaton continue to clarify foundational legal principles, pressure mounts on exchanges and regulators alike to align actions with judicial reasoning.
For investors, developers, and platforms, clear distinctions between initial offerings and secondary trading are essential for innovation, compliance, and user access.
While Coinbase has not yet announced plans to relist XRP, Grewal’s public alignment with Deaton suggests the exchange is closely monitoring legal developments—and may be laying the groundwork for a future reversal.
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