Ripple and Six Chains Push to Lock the Howey Split

Ripple asked the SEC on October 20, 2026, to adopt Regulation Crypto Assets and keep the token itself out of securities status. Chief Legal Officer Stuart Alderoty said the investment contract is the security, not the coin, and that years of coin-by-coin cases pushed work offshore. Six other chains filed a joint letter asking the Commission to put “digital commodity” status in the rule text, not the preamble, after the Senate failed to advance the CLARITY Act 49-50 on September 15, 2026.

Ripple Asks the SEC to Freeze the Howey Split

The filing went to SEC Secretary Vanessa A. Countryman on the last day of the formal comment window for File No. S7-2026-27. Ripple’s comment letter on the proposal “fully supports” the Commission’s effort and “urges the Commission to adopt the Proposal in a final rule.” It builds on a March 2026 joint SEC-CFTC interpretation and on SEC v. W.J. Howey Co., the 1946 Supreme Court case that defines an investment contract.

Alderoty posted the same day that the SEC has clear authority to adopt the rule. He put the legal point in one line the industry has been repeating since the XRP case.

The investment contract is the security, not the token. What matters is what an issuer actually promised and when those promises end, not a subjective “decentralization” test.

Stuart Alderoty, Chief Legal Officer, Ripple, on X

1/ Today Ripple filed its comment letter on the SEC’s proposed Regulation Crypto Assets. We support the proposal, and the SEC has clear authority to adopt it.
2/ Years of “case by case, coin by coin” enforcement has pushed innovation offshore. We need holistic rules for digital…

— Stuart Alderoty (@s_alderoty) October 20, 2026

The letter rests on three claims. An investment contract that involves a crypto asset does not turn the asset into the security. Promises can end, and the Commission’s reach follows the life of the obligation. Whether a contract exists, and whether it has ended, turns on the issuer’s own words, not on a market sense of decentralization.

Ripple points to Section 28 of the Securities Act and Section 36 of the Exchange Act, which let the Commission exempt a class of persons, securities, or transactions. It also cites Coinbase, Inc. v. SEC, in which the Third Circuit in 2025 called the agency’s refusal to write digital-asset rules arbitrary and capricious and sent the petition back. The XRP fight is the cost figure the letter uses. “Securing that clarity cost Ripple more than $150 million in legal fees,” it says. “Few market participants can bear that cost, and none should have to in order to learn what the law requires.”

A later Commission can still reopen a rule it writes. That is the live objection to treating this filing as the end of the fight, and it is why the letter asks for operative rule text, including a no-presumption clause if an issuer never files Form TR.

Form TR Would Let the Token Keep Trading

The prize in the proposal is not a new slogan about clarity. It is proposed Rule 400, a non-exclusive safe harbor, plus a public Form TR on EDGAR. Under that design, the security is the arrangement. The arrangement can end while the asset keeps trading.

HOW THE SAFE HARBOR WORKS

• The test: The issuer has completed or permanently ceased all essential managerial efforts it promised, and it is not making new ones.
• The filing: A Form TR with a certification and supporting analysis a reasonable investor can follow.
• The result: The covered investment contract is deemed to have ceased to exist for the Commission’s administration of the securities laws.
• The remaining risk: The SEC may still challenge the filing, and private parties are not barred from suing.

Ripple wants that harbor to cover issuers that walked away, not only issuers that finished the work. Question 133 in the release asked whether to limit relief to fulfilled promises. Ripple said no. Once the issuer stops, buyers can no longer look to those efforts for profit, so the rationale for ending the contract “applies equally,” the letter argues. Chairman Paul Atkins has described the same three exits: the issuer fulfills the promises, fails to satisfy them, or they otherwise terminate.

The letter also fights a split some commenters want between “company-backed” tokens and “network” tokens. Ripple says that split would bring back an implicit-promise standard the Commission just dropped. It asks the adopting release to say an issuer may not use post-functionality status to send enterprise revenue back to holders by payment, buyback, or burn. Network fees that fund a burn, with no issuer revenue on top, would sit outside that test.

Ripple further asked the Commission, in response to Question 135, to extend Rule 400 beyond the Securities Act and the Exchange Act to the definitions of “security” in the Investment Company Act and the Investment Advisers Act. A Form TR that ends status under two statutes and leaves the other two untouched would strand advisers and funds on a half-finished off-ramp.

A Joint Letter on Digital Commodity Status

Chainlink Labs joined Stellar Development Foundation, Hedera, Aptos Labs, Ava Labs, and Cardano Foundation in a separate letter. Taylor Barr, Chainlink’s head of policy, said the groups want the SEC to codify its digital commodity framework. He thanked Jackson Mueller for leading the work, then added Cardano after a gap on the first post’s tags.

.@chainlink is proud to partner with @hedera, @Aptos, @AvaLabs, and @StellarOrg in urging the SEC to codify its digital commodity framework.

Builders need lasting certainty. Codifying this progress would be a meaningful step toward keeping America the home of digital asset… pic.twitter.com/rAjs9C6vdy

— Taylor Barr (@taylorjbarr) October 20, 2026

“Builders need lasting certainty. Codifying this progress would be a meaningful step toward keeping America the home of digital asset innovation,” Barr wrote. The joint ask is narrower than a blanket endorsement. The March 2026 interpretation already treats some crypto assets as digital commodities and says an asset in an investment contract does not automatically become a security. That language now sits in supporting material. The six groups want the definition, and its non-security status, written into the operative text of Regulation Crypto Assets.

Preamble language dies faster than a rule. A future Commission can walk back an interpretation without notice and comment. Changing rule text takes a new rulemaking. That is the practical reason six competing chains signed one letter. They are not merging products. They are trying to keep a classification from remaining optional guidance.

The $5 Million Startup Cap Is the First Fight

The Commission issued the proposal on August 18, 2026, under Release Nos. 33-11434 and 34-106150. The agency page says the package would create two exemptions from Securities Act registration and a conditional safe harbor from the term “investment contract.” Issuers would give principles-based disclosures and stay under antifraud and antimanipulation rules. Paul Atkins, the SEC chairman, called the package a step to modernize federal securities rules for crypto assets when it went out in August.

The startup track would allow offerings of up to $5 million during a four-year period, generally once per asset. Covered transactions include sales, airdrops, and network rewards. An issuer would file Form NOR on EDGAR and post narrative disclosures on its site, with updates due within 30 calendar days after year-end if anything material changed. No audited financials. General solicitation would be allowed, with no accredited-investor gate and no per-person caps. Bad actors under Regulation A’s Rule 262(a) would be barred. Tokens sold on this track would not be restricted securities, so buyers could resell unless a contract said otherwise.

The larger track is a two-tier fundraising exemption modeled on Regulation A. It includes a $20 million lower fundraising tier and a $75 million upper tier in any 12-month period. Affiliates could sell up to $6 million on Tier 1 and $22.5 million on Tier 2. Issuers would have to be organized and based in the United States, a test the startup track does not impose. They would file Form 1-CRYPTO, take staff review and qualification, and, on Tier 2, provide audited financials. Non-accredited buyers would generally be capped at 10% of income or net worth. Ongoing reports would run on Forms 1-KC, 1-SC, and 1-UC. State registration would be preempted for these offerings and for some resales if the issuer stays current. State fraud cases would remain.

THE OFFERING CAPS IN THE PROPOSAL

The Blockchain Association backed the direction of the exemptions and then asked for room to build. Its thread on October 20, 2026, urged the $10 million startup figure, the $150 million fundraising figure, and a third-party path so platforms can file for tokens already in the market. A $5 million ceiling over four years is a seed round by U.S. venture standards. Projects that used offshore foundations also fail the U.S.-nexus test on the larger track, which is how many existing networks are set up.

Why the Senate’s 49-50 Vote Left This to the SEC

The letters landed because Congress did not finish market structure. The House passed H.R. 3633, the Digital Asset Market Clarity Act, on July 17, 2025, by 294-134. On September 15, 2026, the Senate voted 49-50 on cloture on the motion to proceed, 11 votes short of the 60 needed even to begin debate. The bill is not law. Midterm elections are on November 3, 2026. A revival in this Congress would have to clear that calendar.

THE PATH FROM BILL TO COMMENT FILE

1. July 17, 2025: House passes the CLARITY Act 294-134.
2. March 2026: SEC and CFTC issue a joint interpretation on how Howey applies to crypto assets.
3. August 18, 2026: SEC issues Regulation Crypto Assets, Release Nos. 33-11434 and 34-106150.
4. August 21, 2026: The proposal is published in the Federal Register on August 21, opening a 60-day comment window.
5. September 15, 2026: Senate cloture on the CLARITY Act fails 49-50.
6. October 20, 2026: Formal comments close; Ripple, the Blockchain Association, and the six-chain group file.

Agency rules are faster than a statute and easier to unwind. That trade is the whole posture of these letters. They praise the Commission for writing a class-wide rule instead of bringing another coin case, and they still try to hard-code the parts a later chair could otherwise treat as speech in a preamble. Holders who bought for price gains still sit on Howey’s profit prong, which is the objection a rule of this design does not erase. A statute that assigned spot commodity markets to the CFTC would have drawn that line in law. This proposal draws it in an SEC safe harbor.

Fulfillment Versus Walk-Away on Rule 400

Support for the Howey split is wide in the file. Support for treating a dead project like a finished one is not. Independent commenters, including Dana Love and Andre Jackson on the S7-2026-27 docket, told the Commission that Rule 400 should not give the same relief to an issuer that abandoned the work and an issuer that completed it. Switching off disclosure at the moment buyers most need a wind-down report, they argued, is the wrong incentive.

WHERE THE FILE SPLITS

• Ripple’s view: Promises end when they are performed, abandoned, or terminated, and the harbor should follow all three paths, with a public announcement when an issuer walks away.
• Investor-side view: Limit Rule 400 to fulfilled efforts; send abandoned projects through a separate disclosure-based wind-down.
• Filing fear: Issuers may skip Form TR if the form reads as an admission that a security existed, which is why Ripple wants a no-presumption clause for non-filers.

That split will matter more than the press-release line about supporting regulation. If abandonment qualifies, a failed launch can exit the securities laws by saying the work has stopped. If it does not, those tokens stay in a gray zone until someone finishes the roadmap or a court says the contract is over. Exchanges and brokers, which Ripple wants to be able to rely on a clean Form TR, will price that difference into listings.

The Off-Ramp Still Needs a Final Vote

The comment file is with the Commission. Ripple asked it to adopt the proposal, drop a subjective decentralization test, keep abandonment inside Rule 400, and write a no-presumption clause so silence on Form TR is not treated as guilt. Chainlink, Cardano, Hedera, Stellar, Aptos, and Avalanche asked for digital commodity language in the rule itself. The Blockchain Association asked for higher caps. That is not a final rule.

A later Commission can still reopen whatever text this one adopts. That is the limit of using the SEC as a stand-in for the statute the Senate did not pass. The next act is an adopting release, or a long wait for a new Congress to take up market structure again.

Disclaimer: This article is news reporting and analysis of a proposed SEC rule and of comment letters filed on that proposal. It is informational only and is not legal, investment, or regulatory advice, and it is not a recommendation to buy, sell, or hold any crypto asset or security. Readers should consult a qualified securities lawyer or a licensed financial adviser before relying on U.S. offering exemptions, safe harbors, or token classifications. Figures, dates, and statuses reflect the cited filings and agency materials as of the dates named above and may change if the Commission revises or adopts the proposal.