Many NFTs who pay creators over time are not security: the hester Peirce of the SEC
Security and Exchange Commission (SEC) Commissioner Hester Peirce said there are many unimaginable tokens (NFTs), including those with mechanisms to pay the creator’s royalti, likely to fall out of purview of federal security laws.
In a recent speech, Peirce Says NFTs that allow artists to earn revenue resale are not automatically qualified as security. Unlike stocks, NFTs are programmable assets that distribute proceeds to developers or artists. The SEC official told the mirrors how streaming platforms paid musicians and filmmakers.
“As streaming platforms pay royalties to the creator of a song or video every time a user plays it, an NFT can enable artists to benefit from appreciating the value of their work after its initial sale,” Peirce said.
Peirce added that this feature does not provide NFT owners of any rights or interests to any business or income “traditionally associated with security.”
SEC does not prohibit NFT royalti
Oscar Franklin Tan, chief legal officer of the Enjin Core Contributor Atlas Development Services, told Cointelegraph that Peirce’s recent comments on NFTS and Royalties creators were widely misunderstood.
Peirce made it clear that NFTs that send the resale of royalti to artists are not necessarily security, a view said Tan said that legal sounds but accidentally in some media reports.
“So Hester Peirce said that an NFT that sends royalties back to the creator after a sale is not a security. This is right, but the way some media reports that it is completely out of context,” Tan told Cointelegraph. “The actual context is not controversial, and it is not considered a security.”
The lawyer said US securities law focused on regulating investments and not paying creators for their work.
“The actress or creator is not an investor, not a passive third party in the NFT,” he said, noticing that royalty payments are not considered investing income.
Instead, Tan told Cointelegraph that this type of income is “similar to business income,” which is not controlled by the SEC. He added:
“The SEC has never been forbidden contracts where artists and creators get royalties from the second sales of their work, not royalties from paper contracts or blockchain protocols.”
Tan explained that the legal difference becomes more complicated when the NFTs promise to share the income from the royalties to the many holders beyond the original creator.
Tan also urged regulators and market participants to apply traditional legal reasoning on new blockchain technologies. “Ask yourself, if it were made of pen and paper instead of blockchain, would there be a regulation issue?” he said. “If not, slow down.”
Related: SEC charges the Unicoin Crypto platform with alleged $ 100 million fraud
Opensea calls the SEC to free NFT markets from oversight
While NFT Royalti may not be a controversial SEC issue, NFT markets are a different case. In August 2024, the NFT Opensea trading platform received a notice of Wells From the SEC, which allegedly exchanged NFTs in the market may be qualified as unregistered security.
On February 22, Opensea CEO Devin Finzer announced that the SEC has Its investigation has officially closed On the platform. The executive said this was a win for the industry.
Following the end of the SEC investigation, the Opensea lawyers wrote a letter to Peirceleading the crypto task force of Sec. Opensea General Counsel Adele Faure and Deputy General Counsel Laura Brookover stated in an April 9 letter that NFT markets do not qualify as brokers under US security laws.
Lawyers say markets do not conduct transactions or act as mediators. Lawyers urged the SEC to “clearly say that NFT markets such as Openea are not worthy as exchanges under the laws of federal security.”
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