Whether XRP is a security or a commodity depends on how it was sold, not on the token itself. A federal court ruled in July 2023 that Ripple Labs’ direct sales of XRP to institutional buyers were unregistered securities offerings, while XRP bought and sold by ordinary traders on public exchanges was not a security. The Securities and Exchange Commission’s case against Ripple closed in August 2025 with a $50 million penalty and the dismissal of all appeals, leaving that transaction-by-transaction framework in place. No federal agency has formally classified XRP as a commodity, though exchange-based trading now sits outside the securities regime.
When XRP Sales Count as Securities
The U.S. District Court for the Southern District of New York held that Ripple’s sales of XRP to hedge funds and other institutional buyers were unregistered securities offerings. Those sales totaled roughly $728 million and were made under written contracts.1Justia. Securities and Exchange Commission v. Ripple Labs Inc. et al.
The court applied the Supreme Court’s Howey test, which treats a transaction as an “investment contract” (and therefore a security) when someone invests money in a common enterprise expecting profits from the efforts of others.2Cornell Law Institute. SEC v. W.J. Howey Co., 328 U.S. 293 Ripple had marketed XRP directly to these institutional buyers, telling them the company planned to build out uses for the token and establish the XRP Ledger as a force in payments. The buyers understood their returns depended on Ripple’s business success. Because Ripple never registered the offering under the Securities Act of 1933, the sales violated Section 5.3United States District Court Southern District of New York. Order in SEC v. Ripple Labs, Inc.
When XRP Sales Do Not Count as Securities
The same court granted summary judgment to Ripple on three other categories of transactions.3United States District Court Southern District of New York. Order in SEC v. Ripple Labs, Inc.
Programmatic Sales on Exchanges
Ripple sold roughly $757 million of XRP through public digital asset exchanges using blind bid-ask transactions, where neither side knew who they were trading with.1Justia. Securities and Exchange Commission v. Ripple Labs Inc. et al. The court found the Howey “efforts of others” element missing. Retail buyers on exchanges had no idea Ripple was the seller, were not responding to any Ripple pitch, and had no contract with the company. Ripple’s programmatic sales made up less than 1% of global XRP trading volume, so most people buying XRP on exchanges were not investing in Ripple at all.3United States District Court Southern District of New York. Order in SEC v. Ripple Labs, Inc.
Employee and Developer Distributions
XRP that Ripple gave to employees as compensation or handed to third-party developers to build on the XRP Ledger also fell outside the securities framework.
Executive Sales
CEO Bradley Garlinghouse and co-founder Christian Larsen sold XRP through the same kind of blind exchange trades as Ripple’s programmatic sales. The court applied the same reasoning: the buyers had no relationship with them and no expectation of profits tied to their efforts.
The practical takeaway is that XRP is not inherently a security. Legal status turns on whether the buyer had a direct relationship with Ripple and purchased based on its promotional efforts.
How the Case Ended
On August 7, 2024, the district court entered a final judgment imposing a $125,035,150 civil penalty against Ripple and a permanent injunction against future Securities Act registration violations.4U.S. Securities and Exchange Commission. SEC Announces Joint Stipulation to Dismiss Appeals, Resolving Civil Enforcement Action Against Ripple and Two of Its Executives Both sides appealed. The SEC challenged the programmatic-sales ruling; Ripple cross-appealed on the institutional sales.
Before the Second Circuit heard arguments, the parties settled. Ripple paid $50 million to the SEC in full satisfaction of the penalty, with the remaining $75 million returned from escrow.5U.S. Securities and Exchange Commission. Ripple Labs, Inc., Bradley Garlinghouse, and Christian Larsen On August 7, 2025, the parties filed a joint stipulation dismissing the appeal and cross-appeal.4U.S. Securities and Exchange Commission. SEC Announces Joint Stipulation to Dismiss Appeals, Resolving Civil Enforcement Action Against Ripple and Two of Its Executives The settlement also contemplated a joint request to dissolve the injunction.
How Much Weight the Ripple Ruling Carries
The decision is a district court ruling, not an appellate one. Because the appeals were dismissed rather than decided, the Second Circuit never addressed whether the programmatic-sales distinction is correct. Other judges in the same courthouse have gone the other way. In SEC v. Terraform Labs and SEC v. Coinbase, different Southern District of New York judges declined to draw a line between institutional sales and secondary-market transactions, holding that Howey can apply to exchange-based trades as well.
The Ripple ruling remains the only fully litigated federal decision finding that programmatic exchange sales of a digital asset are not securities transactions. Exchanges and market participants have relied on it, but its legal authority is confined to the facts of the Ripple case. A future appellate decision could unsettle it.
Is XRP a Commodity Instead?
The Commodity Exchange Act defines “commodity” broadly, covering all goods, articles, services, rights, and interests in which futures contracts are traded.6Office of the Law Revision Counsel. 7 U.S.C. 1a – Definitions The Commodity Futures Trading Commission has primary authority over futures, swaps, and derivatives.7Office of the Law Revision Counsel. 7 U.S.C. 1 – Short Title For spot markets, its power is narrower: it can pursue fraud and manipulation but does not run a registration and disclosure regime the way the SEC does for securities.
The CFTC has treated Bitcoin and Ethereum as commodities in past enforcement actions. It has not issued a formal classification for XRP. Because the Ripple court found that exchange-based XRP sales are not securities, many market participants treat XRP as a commodity for those trades by default. No federal agency has definitively labeled it one, and the boundary between SEC and CFTC jurisdiction over digital assets is still contested.
Pending Legislation That Could Change the Answer
Congress has been working on legislation to draw clearer lines between SEC and CFTC authority over digital assets. The Financial Innovation and Technology for the 21st Century Act, known as FIT21, passed the House with bipartisan support and would set a framework for when a digital asset transitions from a security to a commodity based on how decentralized its network is. As of January 2026, the Senate Banking Committee had scheduled a markup on comprehensive digital asset market structure legislation, but no bill has been signed into law.8United States Committee on Banking, Housing, and Urban Affairs. Chairman Scott Announces Digital Asset Market Structure Markup
Until legislation passes, the status of tokens like XRP will keep being defined case by case through enforcement actions and court rulings. A market structure statute could give tokens a direct path to CFTC regulation as digital commodities.
How XRP Is Taxed Either Way
The IRS treats all virtual currency, including XRP, as property for federal tax purposes regardless of how a court or agency classifies it under securities or commodities law.9Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions Selling or exchanging XRP produces a capital gain or loss equal to the difference between the proceeds and your cost basis. Hold for more than a year and the gain qualifies for long-term capital gains rates; sell inside a year and it is taxed at ordinary income rates.10Internal Revenue Service. Digital Assets
Because XRP is treated as property rather than a security, the federal wash sale rule generally does not apply. That rule blocks a tax loss when an investor repurchases substantially identical stock or securities within 30 days, and it does not cover most digital assets. The exception is tokenized securities, which became subject to the wash sale rule for basis-reporting purposes for assets acquired on or after January 1, 2026. Ordinary XRP held as an investment is not in that category.
Starting in 2026, digital asset brokers must report cost basis on Form 1099-DA for covered transactions, similar to how stock brokerages use Form 1099-B.11Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets Exchanges will send both you and the IRS statements showing proceeds and basis on your XRP trades.