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Key Takeaways
- NFT marketplace OpenSea received a Wells Notice from the SEC, says the company’s CEO.
- The SEC alleges that NFTs are securities and their sale broke securities law, OpenSea CEO said.
- OpenSea has pledged to “stand up and fight” against the charges, including an offer to assist NFT creators with up to $5 million in legal fees.
- Last month, two NFT artists preemptively sued the SEC in an effort to gain clarity on regulation of NFTs.
OpenSea, one of the largest marketplaces for non-fungible tokens (NFTs) may be facing regulatory action from the U.S. Securities Exchange Commission (SEC).
The company has received a Wells Notice—a notification from the regulator about a completed investigation and any potential enforcement actions—its CEO Devin Finzer said in a post on X.
Why Is SEC Investigating OpenSea
According to Finzer, the SEC alleges that sale of NFTs on OpenSea broke securities laws because NFTs are securities and those transactions constituted sales of unregistered securities.
NFTs are unique digital assets that provide proof of ownership of an underlying asset such as art, trading cards, sports memorabilia etc. that is verified on a blockchain. They may be exchanged for cryptocurrencies or dollars but are called non-fungible because they cannot be exchanged for each other.
OpenSea contests that the regulator’s allegations do not apply and that it is “ready to stand up and fight.”
“NFTs are fundamentally creative goods: art, collectibles, video game items, domain names, event tickets, and more, Finzer wrote, adding, “we should not regulate digital art in the same way we regulate collateralized debt obligations.”
This action by the SEC is not isolated, as it follows a pattern of increased scrutiny of crypto-related companies. Earlier this year, decentralized exchange Uniswap and blockchain technology firm Consensys also received Wells Notices, indicating a broader regulatory focus on the cryptocurrency and decentralized finance (DeFi) space. Robinhood (HOOD) also disclosed a Wells Notice against its crypto platform in May while crypto exchanges, such as Coinbase (COIN) and Kraken, have ongoing cases with the SEC.
What Does This Mean For NFTs?
But SEC’s enforcement approach has raised concerns about its impact on the entire NFT ecosystem.
Some creators have already taken proactive steps, with two NFT artists filing a lawsuit against the SEC last month, seeking clarity on the regulator’s approach to NFTs.
Additionally, OpenSea has pledged $5 million to assist with legal fees for NFT creators and developers who may receive Wells notices from the SEC.
NFTs soared in popularity in 2022, with some specific ones selling for millions of dollars. That said, NFT market activity has decreased dramatically from its peak, according to data from OKX, with weekly trading volume dropping from over $2 billion to around $50 million.
They may have lost momentum but they are not forgotten as former U.S. President Donald Trump released an NFT collection on Tuesday.