Ripple CTO Joins Debate on Crypto Security Morphing into Non-Security

Ripple CTO argues tokens can be securities if they include post-sale obligations.
Watchdog Capital CEO said certain futures contracts could transition from securities to commodities.
A lawyer emphasizes the constitutional requirement for such a transition.

Recently, Ripple’s Chief Technology Officer (CTO), David Schwartz, joined a fiery debate within the crypto community regarding the classification of digital tokens as securities, challenging the notion that securities can transform into non-securities over time.

Schwartz shared his perspective on Twitter, highlighting the distinction between items that inherently fall under the securities category, such as stocks, and those that can be sold using investment contracts, like orange groves.

I think we may be conflating two issues. Some things, like stocks, just *are* securities. Other things, like orange groves, aren’t but can be offered for sale using an investment contract and that’s an offering of a security.
Something that just is a security can become not a…
— David “JoelKatz” Schwartz (@JoelKatz) June 22, 2023

According to Schwartz, for a digital token to be considered a security, it must include post-sale obligations like redemption or profit sharing. He argued that without these legal obligations, it becomes difficult to classify tokens as securities.

Bruce Fenton, CEO of Watchdog Capital, argued that specific futures contracts initially function as securities but eventually transition into commodities. Fenton cited examples from the oil and gas industry, emphasizing that if something no longer meets the definition of security under the 33 Act, it should not be classified as one merely because it used to be.

Lawyer Boot Knocker added a constitutional perspective to the debate, emphasizing that only Congress can create or modify laws. Knocker argued that the transformation could only be recognized legally with explicit legislation or judicial opinions allowing securities to morph into non-securities.

Congress hasn’t made a law that says that it can morph into a non-security, and the Judiciary has not issued any opinions that would otherwise allow a security to morph into a non-security. Thus, a security cannot morph into a non-security. Maybe one day they’ll be able to.
— Boot_Knocker (@CryptoEsq_) June 21, 2023

The ongoing debate raises critical questions about the evolving nature of token offerings and the need for clear regulatory frameworks. While some industry experts believe that tokens can transition from securities to non-securities, others assert that such a transformation requires explicit legal provisions or judicial interpretations.

Source: https://coinedition.com/ripple-cto-joins-debate-on-crypto-security-morphing-into-non-security/