Why NFT creators enter the SEC’s “regulatory radar”?

The recent negative reports on non-fungible tokens (NFTs) have exposed a lot of problems with cryptocurrencies and blockchain-based assets. A major feature of NFTs is that they allow users to buy and own Crypto assets. Just in 2021, NFTs are gradually taking the world by storm and attracting the attention of regulators, who have expressed concern about the rapid adoption of NFTs as an asset class.

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Ripple ‘s lessons learned

Under Gary Gensler, the SEC has taken an equally tough stance on a number of other cryptocurrency projects. Not only that, but the Crypto asset industry has also had a heated debate with the U.S. Commodity Futures Trading Commission (CFTC) over regulatory oversight.

One of the key legal issues is – are Crypto assets including NFTs securities? If an NFT is a security, it will be subject to the same rules as stocks. In this regard, Ripple Labs, the operating company of Ripple ( XRP ), has suffered, and they have been accused of violating U.S. securities laws by selling XRP tokens.

Questions, Subpoenas, More Red Flags Are Unleashed

More recently, the U.S. Securities and Exchange Commission (SEC) has once again expressed concern about NFT creators and whether the market is violating regulations. According to a Bloomberg report on March 3, the U.S. Securities and Exchange Commission has begun investigating whether NFTs are “used for financing like traditional securities,” as well as analyzing whether certain NFTs are securities and need to be regulated. Over the past few months, the SEC has reportedly issued subpoenas to certain NFT creators and cryptocurrency trading platforms for more information, with one investigation focused on fragmenting NFTs, the breaking up of an NFT. Sold in many individual units.

In fact, Hester Peirce, commissioner of the SEC and “crypto old godmother”, revealed in December 2021 that the SEC will carefully study NFTs, saying that given the breadth of the NFT market, some parts may belong to the United States. The regulatory authority of the Securities and Exchange Commission. In a 2021 interview, Hester Pierce was pretty sure:

“The field of NFTs is very broad, and some of them may fall under our jurisdiction. There is a possibility that NFTs will be included in the securities regulatory system.”

In fact, SEC attorneys have issued subpoenas over the past few months asking for information on the issuance of illicit tokens from the NFT marketplace. According to the lawyers, this illegal practice involves splitting an NFT asset into shares and allowing multiple people to hold (and trade) it.

The crackdown, as SEC Chairman Gary Gensler had hoped, was aimed at ensuring compliance in the crypto market. Once an NFT passes the Howey test (an effective means of judging whether a financial instrument is a “security”), the NFT will be considered a security, which is also a standard used by the SEC to measure whether an “investment contract” is involved in a transaction .

It’s no exaggeration to say that the SEC has not loosened its regulation of the crypto industry. Take BlockFi as an example, the U.S. cryptocurrency company last year from Tiger Global and Bain Capital Ventures. It has raised $350 million from many investors, and it has become very popular for a while. However, as recently as February, the SEC and state regulators slapped BlockFi with an unprecedented $100 million fine for peddling cryptocurrency lending products to investors.

Needless to say, more exchanges will likely face a similar fate as the scrutiny gets tougher.

Part of this article is compiled from ambcrypto

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