Washington – Hester Peirce, a commissioner of the U.S. Securities and Exchange Commission (SEC), recently stated on regulatory issues related to NFTS (non-fungible tokens) that the royalty income terms attached to NFTS alone are not sufficient to recognize the relevant tokens as securities. This statement provides key regulatory guidance for practitioners in the NFT industry.
At the blockchain policy forum held on Wednesday, Peirce explained whether NFTS are subject to the “Howey Test” in federal securities laws. She pointed out that the core of the “Omnivision Test” lies in determining whether there is “an investment expectation for a common cause and reliance on others’ efforts to gain benefits”. If the main purpose of an NFT purchaser is to obtain physical assets such as artworks or collectibles, or the digital assets themselves, rather than to obtain investment returns through management by others, even if the token includes the function of automatically distributing royalties when resold, it does not meet the definition of a security.
Peirz particularly emphasized that the royalty mechanism belongs to the conventional distribution model of the creator economy and is essentially different from the model in securities investment where investors rely on the issuer or a third party to manage and profit. She gave an example, saying that if an artist issues an NFT and agrees to receive a 5% royalty each time it is resold, and the buyer’s transaction motivation is to collect or appreciate the work rather than expecting the artist team to increase the value of the token through operation, in such a case, the token should not be regarded as a security.
This statement is regarded by the industry as a major boost for the NFT sector. Previously, some NFT projects were forced to adjust their business models due to concerns that the royalty mechanism might trigger securities regulation. Jake Chervinsky, a policy advisor for the Blockchain Association, commented that Peirce’s interpretation provides “much-needed regulatory certainty” for NFT creators and platforms, helping to avoid “excessive regulation stifle innovation”.
However, Peirce also reminds that specific cases need to be judged in combination with the actual situation. If an NFT project guides investors to view the token as an “investment tool” through marketing rhetoric, or if the project party continuously intervenes in token value management, it may trigger securities regulation. She suggests that practitioners clearly distinguish between “collectible attributes” and “investment attributes” when designing NFT products to avoid compliance risks caused by ambiguous expressions.
At present, there are still differences within the SEC regarding the regulatory attitude towards crypto assets. Peirce, as a Republican commissioner, has long advocated for more lenient regulatory policies for the blockchain industry, while SEC Chair Gary Gensler tends to view most crypto tokens as securities. This statement may reflect the delicate balance within the SEC regarding the regulation of NFTS.
Analysis indicates that as the NFT market expands from the art field to scenarios such as games and virtual real estate, the clarity of regulation is crucial to the development of the industry. Although Peirce’s public statement is not an official policy of the SEC, it provides an important reference for the industry to understand regulatory tendencies.
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