Commodity or Security? Ripple CTO Emeritus Explains Key Distinction

Ripple CTO Emeritus, David Schwartz, recently joined a discussion on X pertaining to what qualifies as a commodity.

The discussion began on X when a user asked how insider trading charges could apply in a case involving Polymarket. “Polymarket doesn’t sell securities,” the X user added. The point was that if the platform doesn’t deal in securities, how could insider trading laws even come into play?

Another X user pushed back, noting that there are insider trading rules for commodities. Still unconvinced, the initial X user responded by asking whether the asset in question (trading on Polymarket) could even qualify as a commodity.

“I don’t get how this would be a commodity either. Commodity is defined as goods and articles and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in,” the X user said, citing 7 USC 1a(9).

Ripple CTO Emeritus, David Schwartz, joined the discussion, sharing his perspective on what defines a commodity. “This qualifies as a right or interest to a future delivery because it is a conditional entitlement to a particular quantity of a particular good in the future traded on an exchange pursuant to a standardized contract,” Schwartz stated.

Commodities vs Securities?  

The discussion on what qualifies as commodities or securities remains important as it can determine which regulatory agency has oversight and what rules might apply to trading activity.

The Securities and Exchange Commission (SEC), joined by the Commodity Futures Trading Commission (CFTC), gave an interpretation to clarify how federal securities laws could apply to certain crypto assets and transactions involving crypto assets in March.

Most crypto assets are not securities themselves, according to the SEC, ending an uncertainty that has persisted for more than a decade and giving crypto market users the much-needed clarity on how the Commission views crypto assets under federal securities laws.