Main Points:
- Internal Discord on Ethereum: SEC staff debated ETH’s securities status, torn between “investment contract” concerns and arguments about its decentralization
- XRP Litigation’s Strategic Fractures: Leaked emails reveal doubts about XRP’s stability without Ripple’s support, calling the SEC’s aggressive enforcement into question
- Regulatory Uncertainty or Strategic Compromise?: The disclosures may herald either clearer dialogue between industry and regulators or deeper fragmentation in crypto oversight
1. Exposed “Inner Voices”: The Ethereum Deliberation
Background of the FOIA Revelations
On May 7–8, 2025, leading exchange Coinbase released thousands of pages of internal SEC correspondence obtained via Freedom of Information Act (FOIA) requests. Among these, emails from 2021 lay bare the agency’s vacillation over Ethereum’s ether (ETH) classification.
Arguments for Classifying ETH as a Security
Some SEC staffers argued that ETH met the Howey test for an investment contract—pointing to promises of profit from the efforts of others and the centralized influence of large ETH holders and foundation governance. These advocates warned that failure to regulate ETH as a security could expose retail investors to unmitigated risks.
Counterpoints Emphasizing Decentralization
Opposing voices within the SEC pointed to Ethereum’s transition to proof‑of‑stake, its broad developer community, and diverse node distribution. They contended that ETH’s “degree of decentralization” placed it outside traditional securities frameworks, cautioning that applying securities law too broadly might stifle innovation.
The NYAG’s Attempt to Secure Clarity
In June 2023, New York’s Attorney General office requested an amicus brief from the SEC to classify ETH as a security during its case against KuCoin. Though New York regulators have dual authority over commodities and securities, they argued that an SEC ruling would bolster investor protection. The SEC, however, declined to provide a definitive public stance, reflecting the internal discord now revealed.
2. XRP Litigation: Cracks in the SEC’s Enforcement Armor
The Ripple Lawsuit’s Long Shadow
Since late 2020, the SEC has pursued Ripple Labs, alleging unregistered sales of XRP. Although courts recently sided with Ripple on certain programmatic sales, the agency has pressed on. The newly released 2021 emails, however, reveal deeper unease behind the rhetoric.
Concerns over XRP’s Stability Without Ripple
An SEC email warned that “if Ripple walked away, XRP might implode,” questioning whether the XRP Ledger (XRPL) could sustain itself independently and survive market shocks. Regulators even discussed consulting blockchain experts on potential systemic collapses—an extraordinary step for a securities agency.
Strategic Inconsistencies and Investor Impact
The internal debate highlighted inconsistencies between the SEC’s public enforcement stance and private skepticism. For many XRP holders and market participants, these revelations cast doubt on the solidity of the SEC’s legal foundation for treating XRP as a security, potentially influencing ongoing appeals and settlement talks.
3. Regulatory Drift or Strategic Compromise? Future Implications
Industry Reaction and Market Response
Following the disclosures, ETH and XRP markets saw muted volatility, suggesting traders were already pricing in regulatory ambiguity. However, renewed dialogue between protocol developers and regulators could emerge, aimed at co‑creating clearer frameworks that balance innovation with investor safeguards.
Toward Transparency and Predictability
The SEC’s internal rifts underscore the necessity for more transparent rule‑making processes. Formal guidance—possibly through rule proposals or safe‑harbor mechanisms—could resolve the uncertainty over which digital assets fall inside or outside securities laws, reducing legal risk for both projects and investors.
Risks of Continued Fragmentation
Absent decisive action, the crypto industry may face fractured regulations across federal and state bodies, complicating global businesses’ compliance efforts. Divergent approaches by the SEC, CFTC, and state regulators could prolong legal battles and stifle capital formation in the U.S.
Conclusion
Coinbase’s FOIA “bombshell” has torn open the SEC’s regulatory deliberations, revealing that even within the agency charged with safeguarding markets, views on Ethereum and XRP remain deeply split. Whether these revelations will catalyze cooperative policymaking or entrench fragmentation hinges on the SEC’s next moves and the industry’s readiness to engage constructively. As investors and innovators watch closely, the path toward a more transparent, balanced regulatory regime will prove critical for crypto’s maturation.
