Deaton Shares Insights On How Ripple Could Avoid Legal Problems While Selling XRP For ODL In The US

Pro-XRP lawyer John Deaton has explained the legality of Ripple On-Demand Liquidity (ODL) transactions. He highlighted how the blockchain company could avoid legal issues in the US while selling its token XRP for ODL.

Ripple Sales of XRP Abroad Have No Issues

Deaton's explanation came as a response to a question during the AMA session of CryptoLaw on August 22. A user wanted to know if Ripple could sell its native token, XRP, directly outside the United States based on Judge Torres' ruling.

AMA with John Deaton https://t.co/uFE9ZIVlKY

- CryptoLaw (@CryptoLawUS) August 22, 2023

Deaton confirmed that Ripple can engage in XRP sales abroad without legal problems. He cited that the regulatory jurisdiction of the US Securities and Exchange Commission is only limited to the US.

The lawyer mentioned:

In order for the SEC to have jurisdiction over the sale of a potential security, it has to be within the United States of America.

He maintained that the SEC lacks the legal rights to XRP sales abroad. He stressed that this was a key argument for Ripple as it defended that about 95% of its XRP sales were not within the United States.

According to Deaton, Ripple sold XRP directly abroad before the court's ruling in July. Following the court's verdict, the blockchain company could still engage in XRP sales outside the US without legal issues.

How Ripple Could Sell Within The US?

Conversely, there are legal problems emanating from Ripple's sales of XRP within the United States. According to Judge Torres' ruling on July 13, Ripple's past sales of XRP to institutional investors are categorized as unregistered securities.

Digital Asset Investor, a prominent XRP community member, reacted to Deaton's explanations. The user shared a hypothetical condition that will create legal aid for Ripple to sell XRP within the United States.

He speculated that Ripple could sell its token to the Bank of England (BoE), an institution outside the US. Later, the BoE would sell the XRP for ODL to an American institution like Bank of America (BoA). In agreement, Deaton noted that such trade patterns are within legal bounds and will not create issues for Ripple.

Yes. Plus, as you know DAI, ODL transactions utilize XRP - not as an investment- but as a bridge currency - in a way exactly described by @GaryGensler in 2018, while at MIT.

So if BOE transfers/sells XRP to BOA for ODL purposes, they are not investments as a matter of law...

- John E Deaton (@JohnEDeaton1) August 22, 2023

He explained that institutions don't interact with XRP as a security through ODL but rather as a bridge currency. The lawyer stated that BoE's sales of XRP to BoA will not amount to an investment contract. The involved institutions could only handle XRP between three and five seconds.

Deaton solidified his stance by citing the SEC Chair Gary Gensler's remark at MIT. He reiterated that there's no justification for any claim that the institutions expected profits within such a short period.

Also, Deaton maintained that such XRP sales can't conform to the Howey Test. Last month, Ripple CTO David Schwartz gave similar statements about Ripple's ODL sales. He disclosed that Ripple completes ODL transactions abroad, unaffected by Judge Torres' verdict.

We're still figuring this out. We don't currently have ODL-related sales with a US nexus and not being able to do so is not really a huge deal. We can still do ODL in the US so long as XRP is never sourced from Ripple.

- David "JoelKatz" Schwartz (@JoelKatz) July 14, 2023

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