On Monday, the US Securities and Exchange Commission (SEC) proposed that Ripple Labs—the SF-based blockchain firm—pay $1.9B in fines for the continued sale of its cryptocurrency, XRP. 

U.S. District Judge Analisa Torres handed Ripple Labs and the SEC respective victories last year. Torres ruled that sale of XRP to hedge funds and other institutional buyers did amount to unregistered sale of unregistered securities, but also ruled that the sale of XRP on public crypto exchanges did not fall under security regulations. 

The SEC’s proposed fines and penalties show that it still sees Ripple as a malfeasant actor, even if Torres ruled partially in the defendant’s favor. 

“Ripple is well-positioned to pay a significant civil penalty,” the SEC said in its filing. “And one is warranted here both because a civil penalty should not be just the cost of doing business for a securities law violator, as the Second Circuit has held, and because the need for deterrence is clear given Ripple’s enormous amount of unregistered sales of XRP over the last three years.”

To Ripple, however, the move shows how the SEC “remains bent on wanting to punish and intimidate Ripple—and the industry at large.” Ripple is positioning itself as a bulwark against regulatory encroachment, with its legal future indistinguishable from the sector’s. 

But is that really the case? 

If anything, the SEC’s litigiousness may be an attempt to trim the fat. It’s (at least inadvertently) demonstrating the rewards of compliance—as spot bitcoin ETFs show, even if the SEC doesn’t love them—in addition to the costs of combating regulators. These efforts may make for a more monovalent subsector de facto (and maybe de jure) centered around a single cryptocurrency, bitcoin, which is now sold and packaged in competitive forms by a range of institutions. 

From there, “cryptocurrency” and “digital assets” may become two distinct categories. Things like CBDCs and tokenized assets may fall more fully into the purview of incumbent financial institutions and capital markets, normalizing blockchain-based technologies as digitized extensions of existing asset classes—rather than a significant, libertarian departure from existing financial nebulae. 

Though Ripple doesn’t position itself as a crypto revolutionary that Wall Street should fear—it brands itself as the opposite of that, actually—it’s still in a decisive lurch. On the one hand, a nearly $2B fine—despite the SEC’s arguments otherwise—would be a death blow, especially with Ripple’s hands partially tied in terms of XRP sales, which could also lose value following an unfavorable judgment.

With that in mind, Ripple Labs’s CEO, Brad Garlinghouse, said they’d continue to fight the SEC in court. 

"The SEC plans to ask the Judge for $2B in a case that involved no allegations (let alone findings) of fraud or recklessness," he said on social media, albeit with a .gif graphic from Succession attached to his post, which makes it seem less serious. "There is absolutely no precedent for this. We will continue to expose the SEC for what they are when we respond to this."

But on the other hand, continued regulatory uncertainties may move Ripple’s existing institutional clients to competitors, or compel them to build their own blockchain-based capacities. Ripple needs the case closed, and may need to balance optics and expedience to ensure survival.