Rethinking Crypto Regulation: A Call for Simplicity and Alignment with Established Securities Law

Crypto tokens classified as securities have been a hot-button issue within the digital asset space. Instead, Stuart Alderoty, Chief Legal Officer at Ripple

A key issue in digital asset regulation is determining which crypto tokens should be classified as securities. While the Howey Test and the SAFET Framework offer guidance, applying them to the vast and diverse range of crypto tokens has proven challenging.

In an effort to simplify and streamline this process, Ripple’s Chief Legal Officer Stuart Alderoty advocates for a streamlined approach that focuses on tokens with equity or profit rights. This approach, he argues, would better align with established securities law and provide clarity for all parties involved.

According to MetaLawMan, another pain point in crypto regulation is the heavy reliance on subjective metrics like decentralization. Using decentralization to determine a token’s legal status introduces vagueness into a framework that should be clear and predictable.

This subjectivity allows lawyers to capitalize on unclear rules, leaving judges and regulators to grapple with unnecessary complexity. As a result, developers and investors face risks due to inconsistent legal interpretations. Simplifying these definitions would reduce litigation costs, foster trust, and encourage the responsible use of blockchain technology.

To ensure alignment with established securities law, which has been refined over a century, tokens granting rights to dividends, revenue shares, or liquidation proceeds are similar to traditional securities and should be regulated accordingly.

However, tokens that only offer price appreciation or redemption rights lack these critical characteristics. Applying established principles ensures regulatory decisions are consistent with historical practices, providing a solid foundation for both new and experienced market participants.

The current draft of the Financial Innovation and Technology for the 21st Century Act (FIT21) relies on decentralization metrics to classify tokens. However, this approach should be revised to reflect a more practical and consistent framework.

Removing decentralization as a defining criterion ensures that regulations are clearer and easier to enforce. Consequently, this adjustment would reduce unnecessary legal disputes, allowing stakeholders to focus on meaningful innovation rather than compliance uncertainties.

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