30.11.2021

Regulators spoke about the dangers of working with unique NFT tokens

The hype around unique NFT tokens and blockchain art is not abating, as a result of which financial regulators are gradually starting to pay attention to the new trend.

On the eve of the member of the US Securities and Exchange Commission (SEC) Hester Pierce warned investors that some of the sales of NFT could be recognized as an unregistered distribution of securities. Accordingly, such transactions are subject to the sanctions of the financial regulator, and you need to be more careful with them. Let’s talk about the situation in more detail.

To begin with, let’s clarify that by NFT we mean unique non-fungible tokens that are assigned to certain items from the real or digital world. The peculiarity lies in the fact that all such tokens are located in the blockchain, which cannot be hacked. Accordingly, the owner of the NFT has conclusive proof of ownership within the blockchain – and no one can influence this. In addition, blockchains are transparent, meaning there are no secrets about collectors. More information on the topic can be found in our material.

Note that the popularity of NFT tokens and digital art has really grown on a massive scale. For example, representatives of the State Hermitage have announced their desire to hold an exhibition of works of art in the form of NFT tokens.

At the same time, sometimes activity in the field seems absurd. For example, a unique red pixel is offered to buy for the equivalent of 895 thousand dollars.

Red pixel as NFT

Obviously, someone is trying to capitalize on the popularity of the industry and is doing it in every possible way. It is with such ideas that one should be careful, says SEC spokeswoman Hester Pierce.

Risks of NFT tokens

Pierce expressed her thoughts on NFT during the Security Token Summit webinar. Here is her remark, in which the expert shared her point of view regarding what is happening. The statement is quoted by Decrypt.

The whole concept of NFT assumes that each coin must be fungible, that is, unique in its kind. In general, something like this is less likely to be considered a security. However, people are very creative in creating new NFTs. It’s amazing what some buyers are willing to pay money for. And so I think that all this requires as much detailed consideration as possible.

SEC Commissioner Hester Pierce

Examples of large acquisitions of NFT tokens occur every day. For example, the day before there was a sale of a video, with the help of which the developers of the Uniswap decentralized exchange announced the release of the third version of their platform. They paid 310 ETH or 533 thousand dollars for it at the time of the transaction.

Uniswap Developer Video

In general, the scale of the industry’s popularity is huge: not so long ago, the artist Beeple sold his virtual work, backed by an NFT token, for $ 69 million. Many celebrities have joined the new trend, including Twitter CEO Jack Dorsey and acclaimed performer Grimes.

One of the last “recruits” in the NFT fan camp is singer Abel Tesfaye, aka The Weeknd. On his Twitter account, he announced the release of a new song that will “come out of the NFT space.” Unfortunately, the artist did not provide any additional details regarding their new release.

All we can know is that his song in the form of a unique token will become the property of some collector. At the same time, it will certainly be available for listening by other people as well, just someone definite will be the “owner” of the release.

Here is a tweet from the artist in which he announced the release of the new item.

The new song lives in the NFT space. Release soon.

True, the NFT trend could suffer a significant shake-up if the SEC decides to take the new ecosystem seriously. Pearce noted that in the current hype around unique tokens, there are similarities with the ICO boom in 2017.

ICOs or initial coin offerings have become a real stumbling block for the financial regulator. In past years, the SEC has taken the position that virtually every token ever sold through an ICO is an unregistered security. Largely due to pressure from the Commission, the popularity of ICOs quickly faded away.

At the same time, judging by the requests in Google, on the eve of the popularity of NFT-tokens almost caught up with the peak ICO rates in 2017.

ICO and NFT popularity graph

Is the scenario of a sharp decline in the scope of unique tokens? Time will show. We believe that while this trend is still relatively far from its peak, and with the influx of new investors into the market, its popularity will only increase.

In general, it is not necessary to count on the complete extinction of NFT tokens. It has already become obvious that this niche is changing the idea of ​​digital property rights for the better, because an immutable blockchain stands on the side of non-fungible tokens – and this is worth a lot. Apparently, NFT is with us for a long time.

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