Commissioner Hester Peirce has words of advice for NFT makers and platforms.
Here’s a terrifying thought: The U.S. Congress still doesn’t really know how to regulate the $2.5 trillion crypto market. It’s not that the laws don’t exist, or that Congress is uninterested in digital assets – it’s more that there’s a lack of consensus on how to apply existing regulations to an industry that seems to mutate every few weeks.
This is a pattern that has repeated itself over crypto’s decade-long history. Back in 2017, crypto’s hottest trend was the ICO, or initial coin offering. In the way that a traditional company might issue new shares of stock to the public through an initial public offering, crypto companies were trying to issue new cryptocurrencies as a kind of fundraising mechanism. Eventually, the Securities and Exchange Commission decided ICOs amounted to unregistered securities offerings. If it looks like a security and walks like a security, it’s probably a security.
Today, Congress faces similar challenges at the murky intersection of existing policy and new tech. Do DAOs count as companies? Which crypto companies get to register as federal banks? And should the Federal Reserve issue its own digital currency to keep up?
So far, non-fungible tokens (NFT) haven’t figured in the conversations.
Where stocks and conventional cryptocurrencies are “fungible,” in the sense that any one asset can be exchanged for another of equal value (e.g., a dollar is always worth exactly as much as another dollar), NFTs are unique tokens attached to media files. They’ve proven especially handy for monetizing digital art: Turning a single image file into 100 NFTs is like printing 100 copies of a physical work. Rather than being interchangeable, each token is effectively stamped with its own number.
But as with ICOs, NFTs pose their own unique regulatory risks. Dapper Labs, the company behind the runaway NBA Top Shot NFT franchise, was hit with a class-action lawsuit over alleged violations of securities laws. And even SEC Commissioner Hester Peirce, who has cultivated a reputation as one of the country’s most crypto-friendly regulators, has said that certain frameworks for selling NFTs could get investors into trouble with the law.
Olta Andoni, chief legal officer for an NFT company called Nifty’s, identified a few major areas in which NFTs might be considered securities under existing regulations.
Coindesk
