SEC’s Peirce: NFT royalties don’t turn tokens into securities

Hester Peirce, who leads the SEC’s Crypto Task Force, has stated that the majority of NFTs likely don’t classify as Securities.

Speaking at the SEC’s recent “SEC Speaks” event in Washington, Peirce shared her remarks.

Peirce’s new stance highlights a major shift from the position Gary Gensler, who formerly led the SEC, held.

Peirce, popularly known as “Crypto Mom,” believes that digital assets that don’t represent ownership or interest in a business don’t qualify as securities.

The SEC commissioner explained that some NFTs do not grant holders any economic rights, and thus the SEC should not treat them as securities.

With NFTs, creators can earn royalties—comparable to the way Spotify pays artists each time their music is streamed.

“Just as streaming platforms pay royalties to the creator of a song or video each time a user plays it, an NFT can enable artists to benefit from the appreciation in the value of their work after its initial sale,” Peirce said.

She emphasized that NFTs don’t offer holders any ownership or profit-sharing rights in a business, unlike what investors usually expect from securities.

The commissioner argued that because NFTs don’t fulfill the legal standards of securities, regulators shouldn’t apply federal law to them.

For some time now, controversy has surrounded how regulators should classify crypto assets.

According to former SEC Chair Gary Gensler, regulators should classify cryptocurrencies such as XRP as securities, which has triggered a protracted legal battle.

Peirce believes that early token sales through ICOs have caused confusion about how authorities should classify these tokens.

The majority of beneficiaries from early token releases usually hope to earn profits.

However, when tokens lose value, investors risk losing their funds if the developers abandon the project.

Peirce explained, “Because the crypto assets are sold with promises to develop the network or application and deliver functionality, the crypto assets may be subject to a contract, transaction, or scheme that qualifies as an investment contract, a type of security under federal securities laws.”

While opinions differ, Peirce emphasized that the SEC’s Crypto Task Force aims to bring greater clarity, which will ultimately help the industry.