<\/p>\n
As cryptocurrencies have entered the mainstream over the last several years, the US Securities and Exchange Commission has not shied away from going after top tokens \u2014 and top projects.<\/p>\n
But what the US securities regulator had not done, until Monday, was to pursue charges against an NFT project, alleging that a collection of digital artwork up for sale constituted a security.<\/p>\n
The surprise ruling, imposed on the not-well-known company Impact Theory, sent industry participants scrambling. Coming between a growing number of SEC<\/a> investigations, settlements and charges against the likes of Coinbase<\/a> and Binance<\/a>, plus individual tokens, the charges stood out.\u00a0<\/p>\n And the central question has become whether the allegations levied against the Los Angeles-based Impact Theory, which involved about $30 million, were enough to set a precedent against NFTs more broadly as securities.\u00a0<\/p>\n Read more:<\/strong> SEC charges Impact Theory with unregistered securities offering in NFT launch<\/a><\/p>\n Impact Theory, without admitting or denying the SEC\u2019s charges, agreed to cough up $6.1 million and entered into a cease-and-desist order with the regulator poised to freeze its assets.\u00a0<\/p>\n SEC attorneys claimed the company<\/a>, which had done business with \u201chundreds\u201d of investors, positioned and marketing NFTs<\/a> as offering an investment pathway into its business \u2014 not being offered as simple one-off digital collectible sales.\u00a0<\/p>\n The SEC in its legal filing said the purchases of a number of the company\u2019s NFTs, known as keys, were set up to position \u201cthe purchase of a Founder\u2019s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts.\u201d<\/p>\n The ensuing precedent outcome has big implications not only for individual, small-time NFT creators, but also the large companies that power their issuance and secondary sales, plus the NFT marketplaces that facilitate transactions.\u00a0<\/p>\n In the cease and desist, government attorneys also targeted royalties, which have been contentious in the sector, ordering Impact Theory to amends its smart contracts so as to\u00a0<\/p>\n \u201celiminate any royalty that Impact Theory might otherwise receive from any future secondary market transactions.\u201d\u00a0<\/p>\n NFT transactions have plummeted this year, with weekly trading volumes having fallen to around $70 million recently, down from $1.8 billion in August 2021, according to Dune data<\/a>.\u00a0\u00a0<\/p>\n Adding the uncertainty around what constitutes an NFT security to an already-shaky market that has become far less lucrative than it once was could further slow the market, industry participants told Blockworks.\u00a0\u00a0<\/p>\n NFT powerhouses, including the marketplace Magic Eden<\/a>, have been paying attention.\u00a0<\/p>\n Joe Doll, Magic Eden\u2019s general counsel, said in a statement that the \u201cbiggest takeaway\u201d from the Impact Theory case is that the \u201cregulatory framework applicable to NFTs is being developed real-time while the industry watches and awaits clarity.\u201d<\/p>\n \u201cNow, more than ever, it\u2019s critical that the NFT creators seek the advice of the experienced securities counsel familiar with crypto to ensure their project is following best practices,\u201d Doll said.\u00a0<\/p>\n Brian Frye, a professor at the University of Kentucky College of Law and expert on NFT regulation and crypto copyright issues, told Blockworks that the settlement appears to have been overdue \u2014 not for Impact Theory, specifically, but for the SEC deeming an NFT collection as a security.\u00a0<\/p>\n \u201cThere is no real reason why NFTs would fall outside the SEC\u2019s regulatory authority, especially given how they\u2019re used in practice\u2026and it seems to me, if you look at the economic reality of most NFT projects, the economic reality is that it\u2019s selling a security.\u201d\u00a0<\/p>\n That\u2019s because \u2014 as demonstrated \u201creally clearly and explicitly in this particularly case \u2014 the structure of the NFT is claiming that \u201cwhen you buy one of these NFTs, you are, in effect, purchasing a security interest in the company, and your benefit will primarily be your ability to resell the NFT to someone else for profit.\u201d\u00a0<\/p>\n While it may serve as a grim surface-level outcome for NFT investors and builders, the settlement may \u201coddly enough\u201d as a \u201cregulatory juncture\u201d be able to \u201cactually push for positive change,\u201d according to Akash Mahendra, director at Haven1 Foundation and portfolio manager at Yield App.\u00a0<\/p>\n \u00a0Noting the NFT market falling to a two-year low in August, Mahendra said that the \u201cunprecedented action against an NFT company\u201d could \u201cpotentially inject much-needed accountability into the NFT ecosystem.\u201d\u00a0<\/p>\n \u201cFalling under SEC scrutiny wasn\u2019t entirely unforeseen, given the resemblance between NFT advertisements and traditional investment contracts,\u201d he told Blockworks. \u201cAssurances of perpetually soaring floor prices and unwavering developer support have raised regulatory eyebrows \u2014 particularly as they mirror practices seen in the world of traditional securities.\u201d<\/p>\n Where the digital collectible cards may fall, according to Frye, comes down to the SEC\u2019s interest in terms of the vast world of crypto-related prosecution.\u00a0<\/p>\n \u201cIs this the kind of thing the SEC looks like they want to regulate?\u201d he said. \u201cIt\u2019s a question of what the SEC thinks of it being in its regulatory landscape\u2026The SEC has still not coherently articulated what its regulatory goals are, and I think that\u2019s a problem. The SEC should, as a regulatory agency, explain what it\u2019s trying to accomplish. I don\u2019t think it\u2019s asking too much.\u201d<\/p>\n Get the day\u2019s top crypto news and insights delivered to your email every evening.\u00a0Subscribe to Blockworks\u2019 free newsletter<\/a>\u00a0now.<\/strong><\/p>\n Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can\u2019t-miss tweets and more from\u00a0Blockworks Research\u2019s Daily Debrief<\/a>.<\/strong><\/p>\n Can\u2019t wait? Get our news the fastest way possible.\u00a0Join us on Telegram<\/a>\u00a0and follow us on\u00a0Google News<\/a>.<\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" As cryptocurrencies have entered the mainstream over the last several years, the US Securities and Exchange Commission has not shied away from going after top tokens \u2014 and top projects. But what the US securities regulator had not done, until Monday, was to pursue charges against an NFT project, alleging that a collection of digital […]<\/p>\n","protected":false},"author":2,"featured_media":148889,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[230,225,221,227,226,228,229,60,223,224,222],"class_list":["post-148888","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrency","tag-brave","tag-coinbase","tag-crypto","tag-decentralised","tag-decentralized","tag-decentralized-exchange","tag-erc-20","tag-featured","tag-meme-coin","tag-robinhood","tag-solana"],"_links":{"self":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/148888","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/comments?post=148888"}],"version-history":[{"count":2,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/148888\/revisions"}],"predecessor-version":[{"id":148891,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/posts\/148888\/revisions\/148891"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media\/148889"}],"wp:attachment":[{"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/media?parent=148888"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/categories?post=148888"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dripp.zone\/news\/wp-json\/wp\/v2\/tags?post=148888"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}An \u2018investment into the business\u2019<\/h2>\n
The SEC\u2019s crypto priorities<\/h2>\n
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