The Securities and Exchange Commission may be poised to crack down on the multi-billion dollar industry—but one of its own doesn’t believe the SEC should be so quick to bring down the hammer.
The SEC, according to reports, is currently investigating Yuga Labs—the $4 billion company behind the Bored Ape Yacht Club—for securities violations. But the Commission has thus far issued zero statements regarding its position on NFTs specifically, leaving creators feeling uncertain and frustrated about how to navigate what they consider to be an ambiguous regulatory environment.
And they have a sympathetic ear within the SEC itself: SEC Commissioner Hester Peirce, affectionately known as “Crypto Mom” within the industry.
“I think the SEC has provided very little clarity [on NFTs],” Commissioner Peirce told Decrypt. “There’s a lot of ambiguity. And in situations where there is this much ambiguity, I think people really need to be very careful. This is not the ideal state [of regulation].”
Peirce is one of five presidentially appointed commissioners in the bipartisan SEC, and she has long disapproved of the agency’s approach to crypto regulation in general—and now NFTs in particular.
“I’ve been saying this for two years,” said Peirce. “A good government approach is to lay out the law clearly. And then if people violate it, then you bring enforcement actions. You don’t use enforcement actions to tell people what the law is. You should at least have a baseline of clarity.”
Peirce feels the SEC has taken the opposite approach when it comes to NFTs.“The SEC has taken the position that securities laws need only to be enforced for this area, not interpreted or modified,” she said.
NFTs are unique blockchain-based tokens used to prove ownership of digital assets which, over the last two years, have exploded in popularity.
In January of this year alone, the NFT market saw $5.36 billion in organic trading volume, coming off 2021’s record $25 billion in sales. Since May’s crypto crash, those massive figures have tapered off to roughly $1 billion in monthly NFT trading volume.
Still, major corporations like Meta and Twitter have recently rolled out NFT compatibility for their social media platforms, indicating a concession among the world’s largest tech companies that the novel technology is here to stay.
Peirce believes the SEC could easily provide a substantial amount of clarity to NFT creators as they navigate mainstream adoption, but the federal agency, for whatever reason, has chosen not to give that guidance.
“We could do that anytime we wanted. We have mechanisms for doing that,” said Peirce. “We could work on some kind of group exemptive order that could say, ‘If you meet these parameters, then you’ll be fine under the securities laws.’ We could set out parameters within which people could operate. We could draft some kind of a class no-action letter which says, ‘If you do these things, we’re not likely to recommend an enforcement action against you,’” she said.
“We could do that anytime we want to. But we’re just not doing it,” said Peirce.
Beyond specific guidelines that might need to be adjusted for NFTs, Peirce told Decrypt that there are certain classic characteristics of securities that project creators ought to avoid in order to steer clear of violations.