Marketplaces and creator of NFTs under SEC scrutiny, after Ripple

  • NFTs had a great year in 2021, but with the latest news on the digital asset, there seem to be some potential issues in the landscape.
  • Regarding regulatory violations, the SEC has raised concerns about NFT creators and marketplaces.
  • SEC attorneys have also extracted valuable insights into potentially illegal token offerings over the past few months.

2021 turned out to be a great year for NFTs, with celebrities and star players investing in it. However, the latest news on non-fungible tokens (NFTs) is not optimistic and even signals potential problems for cryptocurrencies and other blockchain-based assets. Additionally, various regulators around the world have expressed serious concerns over the ever-increasing hype surrounding this asset class.

The United States Securities and Exchange Commission or SEC has raised concerns about NFT marketplaces and creators regarding regulatory violations. The SEC even conducted a survey to determine if some people also use NFTs for traditional security purposes.

According to some reports, SEC attorneys are also lending subpoenas to extract information about potentially illegal token offerings over the past few months. Fractional NFTs that allow people to hold and trade a share of an asset were his target.

It is assumed that the recent crackdowns have bought into President Gensler’s vision of ensuring that crypto markets remain under proper regulation. However, once NFTs pass the Howey Test, an SEC standard for determining whether there is an “investment contract” involved in a transaction, they will be considered securities.

Popularly known as “Crypto Mom”, Commissioner Hester Pierce cited last December that some NFTs could fall under the influence of the SEC. In an interview, she explained that some NFTs might fall under their purview due to the ever-expanding landscape. She also cautioned people saying that people should keep in mind that potential NFTs could come up against the securities regulatory regime.

A popular crypto exchange, BlockFi, recently fell under the radar of the SEC. In February of this year, state regulators and the SEC issued a $100 million fine. In the future, more exchanges may suffer the same fate due to increasing scrutiny.

Many cryptocurrency exchanges suffered a similar fate by the SEC under Chairman Gary Gensler. For regulatory oversight, the digital asset industry has also locked horns with the CFTC.

A crucial question is whether digital assets, including NFTs, are securities because in this situation the same rules will apply to them as to stocks. Ripple Labs, creator and distributor of XRP, had to go through a lot in this regard.

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Nancy J. Allen
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