After a historic judgment found that the token was not necessarily security, blockchain company Ripple is hopeful that US banks and other financial institutions would begin to show interest in using its XRP cryptocurrency in cross-border payments.
Ripple’s general counsel, Stu Alderoty, told CNBC last week that the San Francisco-based company intends to begin discussions with American financial organizations about utilizing its On-Demand Liquidity (ODL) product, which uses XRP for money transfers, in the third quarter.
Last week, a New York court issued a landmark decision for Ripple, stating that XRP is “not necessarily a security on its face,” in part in response to accusations filed by the US Securities and Exchange Commission against the firm.
Ripple has been fighting the SEC for three years on charges that Ripple and two of its executives engaged in an improper offering of $1.3 billion in XRP sales. Ripple refuted the charges, claiming that XRP is not a security and is more comparable to a commodity.
As a result, Ripple’s business suffered, with the company losing at least one customer and investor. MoneyGram, the world’s largest money transfer company, will end its collaboration with Ripple in March 2021.
Meanwhile, Tetragon, a U.K.-based investor that earlier backed Ripple sold its interest back to Ripple after failing in its attempt to sue the business for cash redemption.
When asked if the verdict indicated that American banks would return to Ripple to employ its ODL product, Alderoty replied, “I think the answer is yes.”
Ripple also employs blockchain in its business to transport communications between banks, similar to a blockchain-based Swift replacement.
“I think we’re hopeful that this decision will give financial institution customers or potential customers comfort to at least come in and start talking about what problems they’re having in their business, real-world problems in terms of moving value across borders without incurring obscene fees,” Alderoty told CNBC on Friday.
“Hopefully, this quarter will generate a lot of conversations with customers in the United States, and hopefully some of those conversations will turn into an actual business,” he added.
Ripple currently gets the majority of its business from outside the United States, with Alderoty earlier telling CNBC that “[Ripple], its customers, and its revenue are all driven outside of the United States, even though we still have a lot of employees here.”
Ripple employs about 750 people worldwide, with roughly half of them headquartered in the United States.
Ripple utilizes XRP as a cryptocurrency to transfer money across borders. With a market valuation of $37.8 billion, it is now the fifth-largest cryptocurrency in circulation.
The token is used by the firm as a “bridge” currency between transfers from one fiat currency to another, such as US dollars to Mexican pesos, to avoid the requirement for pre-funded accounts on the receiving end of a transfer to wait for the money to be processed.
Ripple claims that XRP can enable money transfers in a fraction of a second.
Nonetheless, the verdict did not mark a complete victory for Ripple. While the judge ruled that XRP was not a security, he also indicated that some token sales did qualify as securities transactions.
For example, the judge ruled that around $728.9 million in XRP sales to institutions the corporation collaborated with qualified as securities since there was a joint enterprise and an expectation of profit.
Alderoty said that the ruling was not a complete victory for Ripple and that the firm will review it in due course to determine how it affected its operations.
“She [Judge Analisa Torres] found — despite our disagreement — that our earlier direct sales to institutional buyers had the characteristics of a security and should have been registered,” he added.
He stated that Ripple’s current operation will be impacted by that aspect of the judgment because its clients are mostly situated outside of the United States.
“We’ll study the judge’s decision, look at our client’s needs, look at the market, and see if there’s a situation here that complies with the four corners of what the judge found when it comes to institutions,” he explained.