Weekly Newsletter
Sep 26, 2023

Newsletter - Issue 203

Newsletter - Issue 203

This Week in Crypto

One of the main stories this week was a U.S. court decision in the Ripple case involving the U.S. Securities and Exchange Commission (SEC). Notably, U.S. District Court Judge Analisa Torres issued a summary judgment opinion holding that the XRP token, by itself, was not a security under U.S. law.  Ripple’s XRP token soared by over 50% this past week. Before we elaborate on what happened, why it matters, and what to expect, here is an overview of the broader market last week.

The biggest gainers of last week were Solana (+26%), Optimism (+23%), and Aave (+8%). Given it was classified as a security in recent lawsuit filings by the SEC, Solana, among other tokens like Cardano and Polygon, enjoyed a recovery following the news. Aave’s jump in price and assets under management, as shown in Figure 1, is influenced by the launch of Aave’s GHO stablecoin on the Ethereum Mainnet.  

Figure 1: Weekly TVL and Price Performance of Major Crypto Categories

Source: Coingecko and DeFi Llama. Close data as of Jul 17, 2023.

What Happened

  • For the Ripple case, on July 13, Judge Torres issued a summary judgment order that was partly in favor of the SEC and partly in favor of Ripple.  Specifically, Judge Torres distinguished between the target of an investment contract (e.g., XRP as a token) versus the sale and marketing of that asset (e.g., the investment contract around the sale or offer of XRP).  The former was not held to be a security, but the latter was in certain circumstances.  Judge Torres’ decision also held that there were disputes of material fact that were not appropriate to resolve on summary judgment, so there could be a trial relating to a few additional issues (including whether Ripple’s founders aided and abetted Ripple’s securities law violations).
  • Key takeaways from the order:
  1. Programmatic sales (e.g., those sold on exchanges) and certain other distributions of XRP (e.g., to employees, etc.) did not constitute a securities offering.
  2. Institutional sales constituted a securities offering.
  3. The Court left open the question of whether secondary market sales of XRP constituted a securities offering, explicitly stating that that question was not before the Court.


  • Short-lived recovery following a prolonged decline: Over the past few months, Bitcoin has been experiencing a slow recovery after over a year of decline. On July 13, Bitcoin reached $31.45K, the highest since May 2022. Ethereum, on the other hand, surpassed the $2K, a level last seen in April following the Shanghai upgrade.

Figure 2: Bitcoin and Ethereum’s Price (3 Years)

Source: Glassnode

  • How did “altcoins” react? XRP led the market-wide recovery, increasing close to 100%, generating more volume than Bitcoin and Ethereum, as shown in Figure 2. Other assets previously deemed securities, such as Solana, Cardano, and Polygon, were also positively impacted. The news of the ruling led them to soar by roughly close to 30% each over the following 48 hours, to then retrace over the weekend. Finally, XRP surpassed BNB in its ranking by market value to regain its position as the fourth largest cryptoasset, while its open interest for XRP futures soared by more than 90% following Judge Torres’ verdict.

Figure 3: Market Share of Crypto Trade Volume

Source: Kaiko

What to Expect

1. Potential Relisting of XRP Across US-Based Exchanges

Given the recent court decision, we may expect a reversal on relisting the XRP token. The impact could extend along to include the suite of the other assets allegedly deemed as a security by the SEC in their legal dispute against Coinbase and Binance, such as Solana, Matic, Cardano, and a dozen others.

2. Revised Valuations

The implications of this case have the potential to fundamentally reshape the strategies employed by foundations and developers when bootstrapping their services and products. In a scenario where projects choose to launch their applications without a token, they would likely opt for fundraising through traditional venture capital (VC) and angel rounds. Furthermore, bypassing the token in the initial stages of the project could trigger a significant shift in investor valuations of existing protocols, prompting a closer examination of the project's underlying fundamentals. Key factors such as recurring revenue and user retention, measured through active and returning users, would take precedence in this revised valuation framework.

For further insights on applying valuation frameworks to digital assets, refer to our State of Crypto Issue 7.

3. New Token Economics and Go-To-Market Strategies

If the ruling remains unchanged, projects will likely be encouraged to adopt community-owned governance models driven by the need to accommodate ‘asset morphing.’ The latter is a concept argued as part of the unconcealed Hinman documents that outline how certain assets can transition from reflecting security characteristics to representing commodities as decentralization progresses.

Moreover, as the sale of XRP to institutional investors was deemed an unregistered sale of securities, projects may reconsider raising equity through primary (non-exempt) sales involving private and venture capital. Instead, they might prioritize a sustainable protocol path that generates additional revenue from the outset, with less emphasis on subsidized demand to incentivize user adoption and capital migration during the early growth stages.

Uniswap is a compelling case study where they refrained from launching a token until after an extensive two-year period dedicated to refining their platform through user iterations. This meticulous approach has proven instrumental in establishing Uniswap as one of the most prosperous decentralized exchanges, boasting a substantial user base with consistently high daily activity levels.

Consequently, we foresee two potential outcomes resulting from this anticipated shift in market behavior. First, more projects at the application layer could postpone token launches until they establish alignment between their product's core services and market demand. Tokens would then serve as a must-have utility, enabling users access to a given product suite rather than solely serving as governance tokens. The argument changes regarding smart-contract platforms as a token is needed to maintain security, decentralization, and stakeholders’ alignment. So instead, we could see more emphasis on secondary market sales for these types of tokens instead of the token-as-fundraising model witnessed in 2017.

Finally, established projects may overhaul their entire business models to enhance token value capture. A notable example is Polygon, which has unveiled a new network architecture where the token plays a more prominent and active role within the ecosystem. Within the emerging ecosystem, POL will serve as the essential asset for validating interconnected chains across the interoperable Polygon universe, thereby fostering increased engagement and participation among token holders.


  • Want to learn more about Ripple? Read our investment thesis here.
  • Celsius has been selling its assets, as part of its bankruptcy proceedings. You can track the massive sales in our dashboard here.
  • Learn more about Ethereum’s Liquid Staking Derivatives, which now constitute the largest DeFi sector by AUM, and are expected to continue proliferating as the ETH staking ratio grows. Check out our dashboard here.
  • We had Blockdaemon as our guest in last week’s Analyst Call. Watch here.

Next Week’s Calendar

These are the top 3 events we're monitoring for next week.

  • Polygon 2.0 last week of announcements: we should learn more about Polygon’s new governance system.
  • ETH CC: The largest ETH annual conference, which ends on the 20th, should continue to reveal more details about the exciting new primitives and technologies of the Ethereum ecosystem.
  • Lummis-Gillibrand Act: Sens. Cynthia Lummis and Kirsten Gillibrand will bring a revised version of their comprehensive crypto regulatory bill to the Senate on Wednesday.

Source: Forex Factory

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