US regulators have kept digital art creators and investors in the dark about which non-fungible tokens (NFTs) could be classified as securities, according to US Securities and Exchange Commission (SEC) member Hester Peirce. .
In an interview with the Financial Times, the regulator’s top Republican commissioner said that some NFTs can be regulated like stocks or bonds. She asked the SEC to publish more information about the market, which includes the Bored Ape cartoons.
NFTs that include “governance rights” or give investors rights to revenue streams can be captured under US securities laws, Peirce said. Tokens that are split and sold can also fall into this category.
As retail investors rushed to buy digital creations from artists and other enthusiasts, “NFTs are a specific area where we can provide some guidelines,” she said. “What would be the harm in introducing something like that?”
Peirce, one of five SEC members, has often disagreed with President Gary Gensler over cryptocurrency regulation.
Gensler took a strict enforcement stance against the cryptocurrency market, which he called the “wild west”. He called for digital asset platforms to register with the regulator and considers most tokens to be securities.
The SEC chairman has resisted drafting new rules for cryptocurrency markets, arguing that existing laws are clear enough. In May, the SEC doubled the size of its crypto enforcement team, including NFTs.
“If an NFT was a security and someone made false claims about it, then they would have a kind of securities fraud problem,” Peirce said.
Peirce joined the agency in 2018 after researching financial regulation at the free market think tank Mercatus Center and serving as a consultant to the SEC.
His comments come as Yuga Labs, a pioneer in NFTs and creator of the well-known Bored Ape Yacht Club collection, is being investigated by the SEC. The company said it was “well known” that regulators “have sought to learn more” about online decentralization and blockchain, adding that it was “committed to fully cooperating with any queries along the way.” Peirce declined to comment on reports about the investigation.
NFTs, which use blockchain technology to validate the ownership and authenticity of artwork and digital items, have surged in popularity over the past year.
But calls for greater regulation coincided with a slump in the NFT market, whose trading volumes have plummeted since the start of the year. The average price of Bored Ape Yacht Club NFTs has dropped by nearly 20% in the last 30 days, according to tracker DappRadar.
Earlier this year, Yuga was valued at $5 billion in a funding round led by Andreessen Horowitz, making the start-up one of the most valuable players in NFT.
As the SEC under Gensler unveiled a series of proposed rule changes since last year, Peirce questioned the need for new regulations for private funds. In February, the SEC proposed rules that would require annual audits of private funds, ban certain fees charged by brokerages and ban preferential terms for certain investors.
Large, sophisticated investors typically don’t need the same SEC oversight for funds as retail investors, she said.
Asked whether U.S. regulators had to act on increased oversight to prevent similar outbursts at Archegos Capital Management — a private fund whose 2021 defaults on margin calls caused losses of more than $10 billion. to Wall Street banks—Peirce said, “I’m just not sure it’s the regulator who’s going to step in and avoid these problems. I think regulators tend to step in after the fact, but you really need risk managers to step in first.” .
Collaborated Tim Bradshaw, London
Translated by Luiz Roberto M. Gonçalves
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