The US Securities and Exchange Commission (SEC) is increasingly taking aim at non-fungible tokens (NFTs) and NFT creators, including the exchanges they trade and mint their assets.
According to sources cited by Bloomberg, the regulator is increasingly interested in the use of NFTs and whether they constitute a breach of securities law.
The regulator has reportedly sent subpoenas demanding further information into some token offerings to establish if securities law is involved.
This move was initiated by SEC under chair Gary Gensler who is actively looking to clamp down on unauthorized transactions of this kind.
This comes in the context of the commission and state regulators penalizing BlockFi with a record $100m fine. Presently, SEC is interested in clamping down on fractional NFTs which break down assets and allow shared ownership between numerous individuals.
The NFT market has been booming. Based on one estimate, in 2021 a total of $4bn worth of cryptocurrencies was sent to smart contracts on the Ethereum blockchain that were tied to NFTs.
NFTs remain a divisive topic but SEC has been using the Howey test, which can establish whether something classifies as a security and therefore falls under the remit of the watchdog.
NFTs remain an elusive asset for several reasons, but it is clear that NFT creators must plan carefully if their assets are not intended to constitute a security and seek the regulator’s approval.