FIT21 Bill: Boon for Crypto Clarity, But Does XRP Stay Decentralized?

As the FIT21 Bill moves to the Senate after receiving strong bipartisan support in the House, many are curious about how this legislation might impact the classification and regulation of XRP, especially regarding its decentralized status.

Could this bill redefine what it means for XRP to be decentralized? What are the potential implications for investors and the broader crypto market?

Read on to explore.

Time to Celebrate?!

The crypto community celebrated the FIT21 Bill’s passage in the House of Representatives. However, a community member claimed that under the new Act, if enacted, XRP would “NOT” be considered “decentralized.”

XRP lawyer Bill Morgan, who has discussed the FIT21 Bill’s implications for XRP from the beginning, clarified that the new legislation would not retroactively change XRP’s status. He explained on X:

“The legislation is not retrospective. The court already found the token itself is not a security. The SEC made it clear it was not going to challenge that finding. The legislation will not change that.”

Morgan’s statement is significant considering the July 2023 ruling where the court declared that XRP, by itself, is not a security. The court’s decision stated that the nature of a transaction, not the asset itself, determines if it qualifies as a security offering under the Howey test.

Differing Views on Decentralization

USAF Vet and pro-XRP enthusiast Jeff offered a different perspective, arguing that XRP will be recognized as decentralized. He noted that the FIT21 Bill targets “control of the network,” common in Proof of Stake systems like Ethereum. In contrast, XRP’s network uses a Proof of Consensus system, which “has ZERO to do with controlling the ‘network’ or voting rights on that network.”

Court’s Decision on XRP

The court’s decision to define XRP based on the transaction context rather than its inherent nature is crucial. The court stated:

“XRP, as a digital token, is not in and of itself a ‘contract transaction’ or ‘scheme’ that embodies the Howey requirements of an investment contract.”

This means sales of XRP to institutional investors were considered security offerings because investors relied on Ripple’s efforts for profit, but retail sales on secondary markets were not. This approach aligns with the broader view that assets like gold and silver can be part of an investment contract depending on the transaction.

FIT21 Bill: Goals and Debates

FIT21 aims to provide clear regulatory guidelines and strong consumer protections in the digital asset space. The bill focuses on transparency, accountability, and clear regulatory roles for the SEC and CFTC, intending to encourage innovation while protecting investors.

However, its impact on classifying assets like XRP as decentralized remains a topic of debate.

Crypto analysts have also raised concerns. Analyst Matt pointed out the potential negative impact on decentralized exchanges (DEXs), stating, “The FIT21 bill doesn’t mention DEXs specifically, but it could be bad.”

Another analyst, ‘Vet,’ emphasized the need for a detailed review of the bill, noting “over 150 mentions of decentralization and the decentralization test described.”

Looking Ahead: What Next for XRP?

The passage of FIT21 marks a significant step toward clarifying the regulatory environment for digital assets in the U.S. Regarding XRP, the current court ruling remains strong—that it is not inherently a security—and FIT21 is unlikely to change that. The focus will stay on transaction context rather than the asset’s nature.

As the bill moves to the Senate, its reception and potential amendments will be closely monitored. FIT21’s final form will shape the regulatory framework for digital assets, affecting their development, market behavior, and investor protection mechanisms.

Will the SEC finally get the upper hand on DEXs? Let us know your predictions!