Cardano Creator Hoskinson Provides Update On ADA Security Concerns, Ripple CTO Shows Support

Ripple and Cardano seemed to put their differences aside as executives from both platforms united against the United States Securities and Exchange Commission’s (SEC) ADA tokens security claims.

Recall that in one of our previous reports, Charles Hoskinson, the founder of Cardano (ADA), took to his Twitter handle to call for peace from the XRP community members.

In the latest development, Charles and David Schwartz, Ripple’s Chief Technical Officer (CTO), challenged the SEC’s stance on ADA security claims in response to Bill Morgan’s tweet, questioning the validity of the SEC’s argument.

Bill Morgan’s Tweet That Sparked Reactions From Charles Hoskinson and Schwartz

Bill Morgan, the pro-XRP lawyer, took to his verified Twitter account to criticize the validity of the SEC’s assertion on security assets. The pro-XRP lawyer noted that the SEC seemed to ignore the nature of technological progress and innovation in the crypto industry.

In a bid to counter SEC’s claim implying ADA is security because IOHK improved the Cardano blockchain and released blogs to inform the public, Morgan made a relatable instance with smartphone updates, where the manufacturers continuously improve their mobile phone features via different upgrades and updating procedures.

The outspoken lawyer maintained that advertising a company’s product does not automatically make such a product a security asset. Per Morgan, if publicizing a product could imply such a product as a security asset, then similar logic should apply to the ongoing development of the Cardano blockchain.

Morgan tweeted, “Why does the SEC think that #ADA is security? Imagine you create a product and then you add some feature or capability that makes it better. This happened a lot in the history of smartphones. You announce this improvement and how it will increase demand for your product/1.”

In addition, Morgan stressed that the SEC’s allegation failed to incorporate ADA’s initial coin offering (ICO), which started in September 2015, and lasted until January 2017. Instead, the regulatory body appears more concerned about the SEC’s argument revolving primarily around secondary market sales on Coinbase after ADA’s listing in March 2021.

Hoskinson And Schwartz’s Reactions To Morgan’s Arguments

Hoskinson delved into Morgan’s argument to provide more clarification on ADA’s ICO. Per Cardano creator, ADA’s initial coin offering got hosted in Japan and never involved direct sales of ADA tokens. Instead, the ICO adopted the vouchers method, targeting specifically the Japanese market, priced in Yen and Bitcoin, with no participation from Americans.

The financing was done in Japan, no ada was sold, only vouchers, marketing was in Japanese, priced in Yen and Bitcoin, no one from the United States participated. Ada launched in 2017 as an airdrop two years after the voucher sale. The facts might be inconvenient to the SEC, but…

— Charles Hoskinson (@IOHK_Charles) June 11, 2023

The Cardano founder also noted that all ADA token purchases triggered by the Americans were 100% restricted to the coins’ secondary sales in 2021, implying that the Americans had no affiliation with the ICO in Japan.

100% done by the secondary market

— Charles Hoskinson (@IOHK_Charles) June 11, 2023

Notably, Morgan maintained that the SEC’s jurisdictional reach would not extend to the ICO because of its nature and location. Per Morgan, the U.S. regulatory agency only adopted the security narrative due to its availability on US-based exchanges.

Joining the discussion, David Schwartz, the Chief Technical Officer at Ripple, pinpointed the SEC’s stance on ICO transactions and secondary sales.

Schwartz also proposed that the SEC’s perspective could be that the ICO depicted a securities offering, albeit one that fell outside their jurisdiction due to the lack of any concrete connections to the United States.

I guess their argument must be the ICO was a securities offering, just not an SEC issue because of no US nexus. But then I thought it was their position that secondary sales were exempt. The ICO transactions didn't take place on exchanges. So what's the investment contract?

— David "JoelKatz" Schwartz (@JoelKatz) June 11, 2023

Intriguingly, Schwartz revealed that the SEC had previously exempted secondary sales from securities guidelines and principles, begging the question of what could have constituted the investment contract that would subject ADA to security classification.

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Tobi Loba

Tobi Loba is a passionate writer with a vast interest in the stock market. She joined the crypto ecosystem about three years ago and has written lots of ebooks and articles in relation to cryptocurrency and blockchain projects. Tobi Loba earned her degree at the University of Ibadan.