SEC is investigating OpenSea, but NFT artists are unlikely to be targeted

Coinbase, Uniswap, Robinhood, Kraken and Consensys are the names the digital asset industry has grown accustomed to seeing the dreaded Wells Notices from the U.S. Securities and Exchange Commission. These companies are exchanges that offer a wide range of tokens on their platforms, many of which are clearly investment vehicles with the promise of future profits thanks to the work of centralized teams. It would make sense if some of the offerings on these platforms fell under the security category.

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But last week, a new and unexpected name joined the list: OpenSea, the largest online NFT marketplace. And now hundreds of thousands of online artists feel like they’re under attack. But probably the real artists don’t have to worry. An NFT project for art’s sake is probably not the kind of project the SEC has on its radar.

Most NFTs are not securities

The SEC’s move came as a big surprise, since most NFTs are clearly not securities: they’re just art that people buy and sell. And there is a long history of people – indeed investors – buying art that the SEC does not regulate as a security. And so the precedent for going after OpenSea is thin.

Until now, NFTs have generally been viewed as a consumer product and not a financial product, stripping the SEC of any regulatory authority. Of course, there are some exceptions – such as fractional ownership of companies – although OpenSea has tried to keep projects that deliver promising returns off the platform.

Despite the facts, the SEC is considering a case against the NFT marketplace.

The facts are on the side of OpenSea and NFT artists

The facts of each case against OpenSea are that the platform generally allows users to buy and sell art, not securities.

There would be no precedent for the SEC to go after NFT artists. In fact, all the facts speak against categorizing art in any form as a certainty. There’s no point. Everyone knows that individuals and entities buy and sell art that is not regulated as collateral. Online NFTs follow this model in most cases.

Therefore, as far as most projects on OpenSea are concerned, the SEC will not have a leg to stand on when it comes to any legislation.

Instead, the SEC’s focus will be on NFTs that are promoted as investments and will also generate future profits through the efforts of the founders of an NFT collection, rather than on pure artists who are merely promoting their art in a new way. an exciting way to try to sell online.

SEC precedent vs. NFTs similar to token precedents

In previous SEC cases against the NFT industry, the SEC has identified a clear pattern. At the heart of the matter was the way the NFTs were promoted, as well as the promise of future profits thanks to the work of the NFT collection team.

Just like during the ICO days, when many projects made bold promises without working on technology, many non-NFT projects functioned as vaporware or vehicles through which founders attempted to secure investment. Instead of innovation, many projects were based on buzz and hype alone, especially around the potential resale value of the project, which the SEC sees as a warning sign.

NFT projects with royalty schemes, revenue sharing and the like are the projects the SEC is likely to be after. For that reason, most NFT artists can breathe a sigh of relief, leave the battle to OpenSea lawyers, and get back to creating.

Those attempting more complicated NFT structures now have to play a waiting game. If there is to be any benefit from the SEC’s Wells Notice to OpenSea, it will at least take a long time due to the possibility of regulatory clarity on NFTs.

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