Cardano Founder Proposes “Ripple Test” as Potential Replacement for Howey Test

• Cardano founder Charles Hoskinson suggested that the “Ripple Test” could replace the Howey Test as the legal standard for determining securities.
• Ripple’s Chief Legal Officer Stuart Alderoty expressed disappointment with the SEC’s appeal but assured that Ripple is ready to defend its position.

Charles Hoskinson, founder of Cardano, recently mocked the U.S. Securities and Exchange Commission’s (SEC) decision to appeal the Ripple ruling. He suggested a potential shift in legal frameworks governing cryptocurrencies with the focus shifting from the Howey Test to the “Ripple Test.”

Cardano Founder Reacts To SEC Appeal Against Ripple

The SEC filed a notice on Wednesday, October 2, stating its intent to challenge Judge Analisa Torres’ earlier ruling in the lawsuit involving Ripple, per the CNF report. Moreover, Hoskinson offered playful comments about introducing a “Ripple Test” to replace the existing Howey Test.

The lawsuit, a key case in the ongoing debate over crypto regulation, has drawn intense attention from the cryptocurrency industry. Ripple’s Chief Legal Officer (CLO), Stuart Alderoty, expressed his disappointment over the SEC’s move.

However, he assured that the blockchain firm is prepared to defend its position in the U.S. Court of Appeals for the Second Circuit. “The SEC case is irrational and misguided,” Alderoty said.

Cardano’s Hoskinson joined the conversation by humorously asking Alderoty if they were “ready to replace Howey with the Ripple Test.” This lighthearted remark hints at the potential for the Ripple case to reshape the legal framework for crypto if the court upholds the current decision.

For context, the Howey Test was established in a 1946 Supreme Court case involving the SEC and W.J. Howey Co. It also determines whether a financial transaction qualifies as an investment contract and a security. According to the test, a transaction is classified as a security if it involves the investment of money in a common enterprise with an expectation of profit based on the efforts of others.

In the Ripple case, the SEC argued that Ripple sold its native crypto XRP as a security in violation of federal laws. However, Judge Torres ruled that Ripple’s programmatic sales and other distributions of XRP did not meet the criteria of the Howey Test, specifically the third and fourth clauses.

Second Circuit To Uphold Current Ruling?

Despite Ripple’s partial victory, the ruling does not yet carry legal precedent, as a district court issued it. However, should the U.S. Court of Appeals for the Second Circuit uphold Judge Torres’ decision, the case could set a significant precedent. This could possibly give rise to what Hoskinson jokingly referred to as the “Ripple Test” for determining whether crypto assets are securities.

Meanwhile, CEO Brad Garlinghouse noted that they are confident in XRP’s status as a “non-security” reported CNF. However, some industry experts speculate that the SEC’s appeal process could drag on until 2026. Moreover, the Second Circuit’s final ruling will happen around the same time.

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