The U.S. Securities and Exchange Commission (SEC) is reportedly considering classifying XRP as a commodity rather than a security.

This discussion is said to have emerged amid ongoing settlement negotiations between the agency and Ripple Labs, potentially signaling a shift in its regulatory stance.

SEC Weighs XRP’s Commodity Status

According to insiders cited by senior Fox Business correspondent Charles Gasparino, the SEC is re-evaluating XRP’s utility and market behavior to determine if it aligns more with commodities like ETH.

“One issue that is being weighed by the commission is whether $XRP continues to trade and have a utility that makes it more a commodity and not a security,” the reporter wrote.

“I am told the Ethereum example is key,” he added, revealing that the regulator is comparing XRP’s trajectory with ETH. The latter was issued through an initial coin offering (ICO), but its transition into a commodity spared it from SEC action. The agency is now seeking to establish whether XRP may have evolved in a similar fashion.

“The SEC believe ETH trades as pure commodity. They are trying to determine if the commission can make that case with $XRP,” claimed Gasparino.

This discussion comes as part of the broader settlement talks between Ripple and the SEC. The financial watchdog previously won a partial victory against the crypto payments company, securing a $125 million fine and a permanent injunction restricting institutional XRP sales.

However, sources privy to the matter claim Ripple’s legal team is pushing for more favorable settlement terms, arguing that recent regulatory shifts justify a relook of the penalties imposed against the firm.

According to the lawyers, if the SEC’s new leadership intends to reset enforcement policies for crypto companies, then Ripple shouldn’t be penalized for past actions. Earlier, it had been reported that these efforts to modify the settlement terms were the main reason behind the delay in resolving the case.

A Proposal for XRP’s Future

Meanwhile, a suggestion by Maximilian Staudinger to designate XRP as a strategic financial asset has added another dimension to the debate.

His plan, submitted to the recently established SEC crypto task force, outlines how integrating the token into the U.S. financial system could unlock $1.5 trillion in liquidity and save $7.5 billion annually in transaction costs.

Staudinger recommends an accelerated implementation of XRP for government transactions, bank liquidity, and even a potential national Bitcoin reserve.

Amid these developments, XRP has experienced a mixed market performance. Despite a 2.6% increase in the last 24 hours, its 13% decline in the past week means it has underperformed compared to the broader crypto market, which is down 6.40%.

However, the asset’s fully diluted valuation (FDV) has now surpassed Ethereums. At the time of writing, it stood at $229.2 billion, compared to ETH’s $228.1 billion.