Post-Ripple Era: Will Compliance Become the New Normal for Blockchain Projects?
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Post-Ripple Era: Will Compliance Become the New Normal for Blockchain Projects?
The SEC will not significantly change its policy toward the crypto industry simply by changing chairs.
Navigating Web3 tides with focused insightsProp Webinar is a live-streaming series produced by Props, a project compliant with SEC Reg A+, focusing on blockchain's "ownership economy". The program airs every two weeks, inviting industry guests to discuss and share insights on various topics, with recordings and transcripts made available for reference.
Episode 6: "Post-Ripple Era – Will Compliance Become the New Normal?" was broadcast on December 29, 2020. Our featured speakers were Adi Sideman, Founder & CEO of Props, and Muneeb Ali, CEO of Hiro (formerly Blockstack). Below is the video and transcript of this session:
Kong Weiguo, Head of Asia-Pacific at Props
We are honored to have Adi Sideman, Founder & CEO of Props, and Muneeb Ali, Co-Founder of Blockstack, join us today’s webinar. Blockstack is a permissionless blockchain that uses proof-of-transfer as its consensus mechanism. Props is a loyalty token focused on tokenizing loyalty points for Web 2.0 applications. Before we begin, could you each introduce yourself and your projects?
Muneeb Ali, CEO of Hiro
Hello everyone, I’m Muneeb Ali, Co-Founder of Stacks and CEO of Hiro PBC (formerly Blockstack PBC). I hold a PhD and Master’s degree in Computer Science from Princeton University.
The Stacks ecosystem is a collective of independent entities, developers, and community members dedicated to building a user-owned internet on top of Bitcoin. The internet as we know it has been broken. We’re working to build a better one, believing it will emerge on blockchains—especially Bitcoin. Stacks provides developers with tools to innovate on Bitcoin, the world’s most secure and mature blockchain, creating value for users in ways previously impossible.
Stacks 2.0, launched on January 14, brings apps and smart contracts to Bitcoin. Our argument is that successful experiments from various blockchains will eventually be built on Bitcoin. Bitcoin’s network effects mean smart contracts around it can access more crypto capital and benefit from higher security. We believe Bitcoin can become the foundation of a better, user-owned internet—just like TCP/IP did for the traditional internet.
Adi Sideman, Founder of Props
Hi everyone, I’m Adi Sideman, Founder of Props. With decades of experience in the digital media industry, I’ve co-founded several scaled consumer networks. I co-founded the world’s first online karaoke platform, which was later acquired by Fox’s Myspace. I also founded YouNow, the first large-scale live streaming platform in the U.S., which reached 120 million monthly active users.
At YouNow, we were the first company to run a large-scale, two-sided digital currency economy—users could buy virtual currency while others earned it. Props was born out of that experience. Props enables businesses to tokenize their loyalty points. It’s a utility/discount token whose value accumulates through discounts and premium features unlocked across apps.
Props gives end users an economic stake in the networks they help grow. It aligns businesses with their best users, who are then incentivized to drive growth. So far, we have six apps onboarded, four launched, and over 7 million users have received Props tokens.
Kong Weiguo, Head of Asia-Pacific at Props
Both Props and Blockstack chose to work with the SEC and obtained Reg A+ exemptions. What advantages does obtaining SEC Reg A+ exemption bring to a project?
Adi Sideman, Founder of Props
By securing SEC exemption, we eliminated legal uncertainties in the U.S. But beyond that—since the Props protocol targets existing Web 2.0 companies generating millions in revenue—they don’t want to introduce risk. SEC approval is key to getting these companies to join a crypto project in the U.S.
Muneeb Ali, CEO of Hiro
If you go back to 2017, even during the bull market, very few people considered regulation seriously. Many tried new things or assumed the SEC was powerless because they didn’t view cryptocurrencies as securities. To me, that always sounded odd—if you look at the relevant laws, there are actually many provisions that directly apply to crypto.
So at the time, what both Props and we did regarding regulation was actually rare. But now that’s changed, as the SEC has taken numerous enforcement actions—though sometimes delayed. It took time for people to fully realize that the SEC’s stance and applicable laws are actually quite clear: you must follow the rules.
In our case, Stacks assets are utility tokens—consumed via smart contracts and used on the network. In such cases, securities regulations may not apply. But confusion remains—your token might be deemed a security at one point and not later. Our approach to this uncertainty is simple: when in doubt, be extra cautious.
Kong Weiguo, Head of Asia-Pacific at Props
Recently, the SEC’s lawsuit against Ripple triggered a chain reaction across the industry. Over 40 exchanges have delisted XRP, Galaxy Digital and Jump Trading no longer act as XRP market makers, and XRP’s market cap has plummeted. What are your thoughts on this?
Adi Sideman, Founder of Props
The industry needs greater regulatory clarity. The SEC is increasingly guiding the market through mechanisms like the Hinman Test (Note: William Hinman, former Director of the SEC’s Division of Corporation Finance, stated in a 2018 speech that sufficiently decentralized cryptocurrencies like Bitcoin and Ethereum do not fall under SEC oversight), communications, and selective enforcement.
Projects taking regulation seriously no longer need to guess regulators’ intentions. They can now follow a path ensuring they aren’t treated as unregistered securities—either by not meeting the Howey Test definition of a security, or by evolving toward sufficient decentralization over time.
Innovators like Blockstack are paving the way, showing how crypto projects can come to market and demonstrate adequate decentralization. This allows new projects to focus on business and development instead of navigating legal and operational complexities from scratch.
Muneeb Ali, CEO of Hiro
I’m not a lawyer but a computer scientist. I did read the full Ripple complaint—I may tweet about it or annotate the 71-page document. But what stood out? Generally speaking, the Ripple case is somewhat unique because it wasn’t a single issuance. The company continuously sold assets over years—and never stopped.
What became interesting to me is that if you were operating in 2013–2014, it was genuinely hard to assess the Ripple situation. But by 2017, the SEC’s DAO Report provided clear guidance. If you read it, it explicitly states that the DAO tokens were securities. However, the SEC ultimately decided not to enforce penalties against The DAO (Note: The DAO was hacked in 2017, leading to the Ethereum fork). Had the SEC enforced action against The DAO or Ethereum back then, the trajectory would have been completely different. Projects would have clearly understood compliance importance and that their crypto assets could be definitively classified as securities. But since the SEC didn’t act, few paid attention to the report. Worse, it may have sent a misleading signal—that even if labeled a security, no penalty would follow. You see, crypto entrepreneurs have long dismissed regulation. But from the SEC’s perspective, their regulatory stance has always been consistent and traceable.
Kong Weiguo, Head of Asia-Pacific at Props
As Reg A+-compliant projects, Props and Blockstack have had closer engagement with the SEC. From your perspective, how would you describe the SEC’s attitude toward blockchain projects? What are their principles and red lines?
Adi Sideman, Founder of Props
Muneeb has more experience here, so I’ll keep it brief. The SEC doesn’t explicitly support or oppose crypto technology. But they recognize it’s becoming a significant industry.
The SEC comprises dedicated professionals doing their best to manage a revolutionary new asset class—trying to create and communicate a framework. The Howey Test is a key tool the SEC uses to evaluate projects. It’s not black-and-white—it allows room for interpretation. When facing it, projects must be able to argue that there is no centralized decision-making entity upon which investors rely.
Muneeb Ali, CEO of Hiro
Sometimes people think complying with regulation means moving your company out of the U.S. But I don’t think it’s that simple. The U.S. market remains one of the largest globally. Even if you're based outside the U.S., if you ever plan to open your network to American users, you must study and comply with U.S. regulations. Just as a U.S. company expanding into other jurisdictions must understand local laws. What the SEC does serves dual purposes: providing a regulatory framework for crypto firms entering the U.S. market, and offering reference points for global regulators.
Back to Ripple: for a long time, Ripple didn’t proactively engage with the SEC. I wouldn’t recommend that approach—you should cooperate with regulators proactively. Some might say even if you try to talk to the SEC, you won’t get clear answers. That’s sometimes true—the SEC evaluates cases individually, giving guidance based on specific circumstances. Like any regulator, we need to understand their process to comply. Specific approvals require direct engagement with the SEC. Therefore, you must work with strong legal counsel to figure out what works and what paths are viable.
Kong Weiguo, Head of Asia-Pacific at Props
We all know BTC and ETH are not considered securities. Blockstack 2.0 will no longer need to report to the SEC due to sufficient decentralization. Once a blockchain project obtains SEC exemption, what conditions must it meet in the future to no longer be regulated?
Muneeb Ali, CEO of Hiro
Actually, the SEC has never sued Ethereum, and whether ETH is a security remains an open question at the SEC. Ethereum’s private sale was undoubtedly a form of securities financing—but that was long ago. Today, both the developer community and token distribution are sufficiently decentralized, so ETH is not currently considered a security. This shows that a crypto asset can initially be a security but, over time, cease to be one once the project becomes truly decentralized—no longer treated as a Security Token.
Bitcoin is even more special—there was never a centralized token sale. Satoshi (or the Satoshi team) released Bitcoin 1.0, after which miners secured the network and distributed tokens via “mining.” Satoshi gradually disappeared, and the Bitcoin network has since been maintained by the developer community and miners.
The transition from Security Token to Utility Token is like a black box—full of unknowns. But this process is crucial—it offers a safe harbor for your project. Blockstack 1.0 launched in 2018 and has operated for years, with hundreds of independent developers and teams using the network. We’ve consistently pursued gradual decentralization. But our biggest challenge was that no prior project had done this, and no regulatory framework existed for such a scenario. So we worked closely with lawyers, deeply studied the Howey Test in practice, developed a tailored framework, and communicated it with the SEC. Ultimately, we formed a new organization, Hiro, independent and focused on advancing the Blockstack 2.0 network. We made this framework public for two reasons: first, to inform our community, developers, and partners ahead of governance votes; second, to share it with the industry—anyone wanting to learn or adapt our framework can access it.
Of course, our framework shouldn’t be copied blindly. As always, the SEC evaluates case by case—projects must seek clear answers directly from the SEC.
Kong Weiguo, Head of Asia-Pacific at Props
SEC Chairman Jay Clayton ended his term early, and Elad Roisman has just been confirmed as the new chair. Do you expect any changes in the SEC’s crypto regulation under Elad Roisman?
Adi Sideman, Founder of Props
Roisman (a Republican) will likely serve only a few weeks as acting chair before the Biden administration appoints a new chair (a Democrat). Generally, Republicans are seen as favoring less regulation, Democrats more. However, when it comes to crypto, the chair’s political leaning may not be decisive. Instead, the SEC will likely continue developing guidance and enforcement within the Howey Test framework—doing what they’re already doing: enforcing slowly but strictly—while allowing the market to unfold its potential over time.
Muneeb Ali, CEO of Hiro
I agree with Adi. The SEC won’t make major policy shifts in crypto just because the chair changed. They’ll stick to their process, continuing to use the Howey Test as the standard for determining whether a crypto asset is a security.
In fact, the SEC operates steadily—we haven’t seen bad regulations emerge. While their actions may lag behind the market, they won’t recklessly impose harmful policies. They move deliberately, and when they act, their stance and enforcement are clear—this is why they remain highly respected.
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