The U.S. Securities and Exchange Commission (SEC) is at a regulatory crossroads. With a new task force under Trump-era leadership setting its sights on a more business-friendly regime, crypto industry stakeholders are weighing in on the direction of future oversight. Ripple, one of the most high-profile players in the digital asset space, has strongly urged the agency to move away from ambiguous criteria like “fully functional” and “sufficiently decentralized” when determining whether a crypto asset qualifies as a security.

These concepts, introduced and expanded under the leadership of former SEC Chair Gary Gensler, have long been criticised for their lack of clarity. Gensler’s approach created a two-tier framework that effectively placed most cryptocurrencies under SEC jurisdiction—except for Bitcoin and Ether, which were deemed “sufficiently decentralized” and thus exempt.

Ripple, currently embroiled in a prolonged legal battle with the SEC, is now pushing for regulatory clarity through well-defined legislative action rather than arbitrary enforcement.

The Gensler Legacy: Vague Standards and Selective Enforcement

During Gary Gensler’s tenure, the SEC aggressively pursued enforcement actions against crypto firms by leveraging undefined metrics of decentralisation and functionality. While Bitcoin and Ethereum escaped regulatory scrutiny under the reasoning that they had no central issuer, other tokens like XRP were classified as securities due to their identifiable corporate origins.

Ripple’s central complaint is that these standards are both “vague and untested,” leaving companies in legal limbo. The firm contends that a crypto asset’s security status should not hinge on murky philosophical interpretations of decentralisation or the subjective view of whether a network is “functional” at any given point in its lifecycle.

This ambiguity, Ripple argues, has led to a patchwork of judicial decisions and unpredictable enforcement, undermining innovation and hindering the sector’s development in the United States.

Hester Peirce Signals Change—But Stops Short of a Full Shift

On May 19, SEC Commissioner Hester Peirce delivered a pivotal speech indicating a potential shift in the agency’s crypto posture. A long-time critic of the SEC’s aggressive enforcement actions, Peirce signalled openness to a new framework that draws clearer boundaries around what constitutes a security.

She emphasised that crypto assets with no link to economic rights or a promissory entity should not fall under federal securities laws. However, she maintained that tokens distributed before a project is decentralised or fully functional might still raise legitimate regulatory questions, especially if the token’s value depends on the efforts of a central issuer.

Peirce’s stance echoes the findings in the SEC’s ongoing case against Ripple, where the court ruled that while XRP itself is not a security, its initial offering qualified as an “investment contract” and therefore was subject to securities law.

Ripple’s Counter: Focus on Rights, Not Functionality

In response to Peirce’s comments, Ripple’s Chief Legal Officer Stuart Alderoty reinforced the company’s position that functionality and decentralisation are unworkable standards. Instead, he proposes a simpler test: whether a token sale grants enforceable rights to the purchaser.

Under this model, post-ICO token transactions—those on secondary markets or unaffiliated exchanges—would be clearly excluded from SEC jurisdiction. This would bring much-needed certainty to the market and prevent the agency from retroactively penalising projects based on evolving interpretations of decentralisation.

Alderoty and Peirce both agree on one key point: only legislation, not regulatory rulemaking or litigation, can provide lasting clarity. They are calling for Congress to definitively clarify the scope of the term “investment contract” and set a statutory standard for crypto assets.

The Road Ahead: Industry Seeks Congressional Action

While the SEC’s internal tone may be softening, the regulatory uncertainty continues to stifle innovation and discourage investment. The fragmented landscape—shaped by inconsistent court decisions, outdated definitions, and overlapping agency mandates—demands comprehensive reform.

Ripple’s challenge to the SEC’s decentralisation doctrine is part of a broader industry push for rational, principle-based regulation. As U.S. lawmakers increasingly turn their attention to digital assets, the call for legislation has never been louder. Only a clear, codified framework can resolve the confusion that has plagued the industry for over a decade.

Until then, crypto firms like Ripple will continue to push back against regulatory overreach and advocate for a system that balances innovation with investor protection—without relying on ill-defined and unevenly applied standards.