SEC Crypto Task Force Lead Advocates for NFT Exemption

SEC Crypto Task Force lead Hester Peirce stated on Friday that projects like Stoner Cats, which have utilized NFTs for fundraising, should be exempted from securities regulations. Clarity from the SEC might soon be forthcoming.

At the SEC’s inaugural crypto roundtable, Peirce, alongside Acting SEC Chair Mark Uyeda, expressed optimism about recent agency communications that classified proof-of-work crypto mining outside the definition of securities. She indicated that NFTs could be the next asset category to receive similar treatment.

> “We could do it on NFTs as well,” Peirce remarked, suggesting a framework could benefit NFT issuers.

NFTs are blockchain-based digital tokens often linked to digital art, traditionally bought and sold on secondary marketplaces. The NFT market peaked in late 2021, reaching $25 billion, with many projects leveraging these tokens to raise significant funds.

Peirce explained that a statement from the SEC regarding certain NFTs’ non-security status could protect creative projects like art NFTs, as well as lucrative ventures such as Stoner Cats and Fly Fish Club, both of which faced SEC scrutiny under former chair Gary Gensler.

Stoner Cats, an animated series led by actress Mila Kunis, raised around $8 million through NFT sales, granting holders certain viewing perks and a tradable asset status with a 2.5% royalty to the project team on secondary market sales.

Fly Fish Club similarly raised over $14 million to establish an exclusive restaurant, with its NFTs creating membership privileges and a comparable royalty system on resales.

Should the SEC clarify NFT status like its recent positions on crypto mining and meme coins, it could facilitate the fundraising use of tradable NFTs with investor perks.

However, Peirce warned that not all NFTs would automatically escape securities regulations, stating, “You could have an NFT that’s a tokenized security.”

Current congressional efforts are also underway to protect certain fundraising activities linked to NFTs, with legislators seeking to include provisions in bills that would sanction NFT sales that offer member benefits, merchandise, or artwork.