SEC Commissioner Hester Peirce Clarifies NFT Royalties Are Not Securities, Easing Some Concerns; However, Regulation of NFT Trading Platforms Remains Challenging as the Market Awaits Clearer Guidance from the SEC.
(Background: Why did Nike’s NFT brand “RTFKT” shockingly suspend operations just as the market was reviving?)
(Context: After Apple lost a lawsuit, the App Store policy update exempts Web3 and NFT applications from the “30% Apple Tax.” Is there hope for the metaverse?)
Regulatory Approaches to Non-Fungible Tokens (NFTs)
The regulation of non-fungible tokens (NFTs) has long been a focal point of market attention, particularly concerning their legal nature and the applicability of securities regulations. Hester Peirce, a commissioner of the U.S. Securities and Exchange Commission (SEC) known as the “Crypto Mom,” recently provided important clarification regarding whether the royalty mechanisms of NFTs constitute securities.
The Debate on the Securities Nature of NFT Royalties: Commissioner Peirce’s Insights
In a recent speech, Commissioner Hester Peirce clearly stated that many NFTs, including those with royalty payment mechanisms, are likely not subject to federal securities laws. She compared the royalty mechanism of NFTs to the payments made by streaming platforms to musicians or filmmakers, asserting that this arrangement allows artists to profit from the secondary sales of their works, similar to how creators earn revenue from plays. Peirce emphasized:
“This characteristic does not grant NFT holders any rights or interests in a company or enterprise, which are traditionally associated with securities.”
Legal Perspectives from the Crypto Industry
Oscar Franklin Tan, Chief Legal Officer at Atlas Development Services and a core contributor at Enjin, stated in a report that Peirce’s viewpoint is legally sound, but her remarks have been misinterpreted by some media outlets. Tan publicly remarked:
“Peirce’s comments have been widely misunderstood; royalties have never been viewed as a type of security.”
Tan explained that the core of U.S. securities law is to regulate investment behavior, not to compensate creators for their labor. Artists or creators are not passive third-party investors; the royalties they receive should be regarded as business income rather than investment income within the SEC’s regulatory scope. He posed a rhetorical question using traditional paper contracts, wondering if such royalty arrangements would raise regulatory concerns without blockchain technology, advocating for careful evaluation before regulatory intervention. However, Tan also cautioned that when the distribution of NFT royalty profits extends to multiple holders beyond the original creators, the situation will become more complex.
Ongoing Ambiguities in OpenSea’s Regulation
Although the legal nature of NFT royalties has become clearer following Commissioner Peirce’s remarks, the primary beneficiaries of this clarity are likely the NFT issuers. Challenges surrounding the regulation of “NFT trading platforms” still persist, dating back to August 2024 when the major NFT trading platform OpenSea received a Wells Notice from the SEC, indicating that certain NFTs traded on its platform might constitute unregistered securities.
While OpenSea CEO Devin Finzer announced on February 22, 2025, that the SEC had officially concluded its investigation of the platform, calling it a significant victory for the industry, this does not mean that the regulatory issues surrounding NFT trading platforms have been resolved. Following the conclusion of the investigation, OpenSea’s legal representatives sent a letter to Commissioner Peirce on April 9, arguing that NFT trading platforms should not be classified as “brokers” under U.S. securities regulations, as these platforms do not actually execute transactions or act as intermediaries. The letter also urged the SEC to clarify that NFT trading platforms like OpenSea are not defined as “exchanges” under federal securities regulations. OpenSea’s experience highlights the legal uncertainties faced by NFT trading platforms in the absence of a clear regulatory framework.
Despite differing perspectives or policy priorities on cryptocurrency regulation from the current administration under President Trump, internal discussions within the SEC continue to focus primarily on how existing legal frameworks apply to emerging digital assets. The future regulatory direction for the NFT ecosystem, as well as how regulatory authorities balance innovation with investor protection, will remain critical issues that blockchain and financial market participants must closely monitor.
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