NFT Royalties Do Not Convert Tokens into Securities
Hester Peirce, who heads the SEC’s Crypto Task Force, has indicated that most NFTs are unlikely to be classified as Securities.
During her speech at the recent “SEC Speaks” event in Washington, Peirce shared her insights.
This new perspective from Peirce represents a significant shift from the stance previously held by Gary Gensler, the former SEC chair.
Affectionately nicknamed “Crypto Mom,” Peirce contends that digital assets that do not signify ownership or interest in a company should not be deemed securities.
The SEC commissioner stated that certain NFTs do not provide holders with any economic rights, indicating that the SEC should not categorize them as securities.
With NFTs, creators have the opportunity to earn royalties—much like the way Spotify compensates artists each time their music is streamed.
“Just as streaming platforms pay royalties to the creator of a song or video for every playback, an NFT can allow artists to benefit from the increasing value of their work after the initial sale,” Peirce remarked.
She noted that NFTs do not grant holders any ownership or profit-sharing rights within a business, which is typically what investors anticipate from securities.
The commissioner argued that, since NFTs do not meet the legal definitions of securities, federal law should not be applied to them.
For some time, there has been considerable debate regarding how regulators should classify crypto assets.
Former SEC Chair Gary Gensler has asserted that cryptocurrencies such as XRP should be classified as securities, leading to a lengthy legal dispute.
Peirce believes that early token sales through ICOs have created confusion regarding how these assets should be classified by authorities.
Most individuals benefiting from initial token releases typically aim to make a profit.
However, investors face the risk of losing their funds if the developers abandon the project when token values decrease.
Peirce explained, “Since crypto assets are sold with commitments to develop the network or application and provide functionality, they might fall under a contract, transaction, or scheme that qualifies as an investment contract—a type of security under federal laws.”
While views may vary, Peirce highlighted that the SEC’s Crypto Task Force is dedicated to providing greater clarity, ultimately benefiting the industry.
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