A lawyer believes that, in some cases, non-fungible tokens can be considered securities. However, the legal professional believe that the recent Wells notice sent by the United States Securities and Exchange Commission (SEC) to OpenSea is not a good use of their time.
On Aug. 28, OpenSea CEO Devin Finzer said that the company received a Wells notice from the SEC, saying that the government agency believes that NFTs on their platform are securities.
A Wells notice from the SEC is a formal warning indicating that the government agency may take enforcement action against a company. It typically outlines the regulator's case and gives the potentially accused firm an opportunity to respond to the allegations.
In a Cointelegraph interview, Oscar Franklin Tan, the chief legal officer of Web3 organization Atlas Development, explained how NFTs could be classified as securities but why the new SEC action is not warranted.
How NFTs can be securities in some cases
Tan explained that in “certain” ways, NFTs can be considered as NFTs. The lawyer explained that among the many use cases of NFTs. Some may resemble investment products. The lawyer said that NFTs can be classified as securities in these cases. Tan explained:
“For example, if I mint stock certificates as NFTs and say you can claim dividends using these, then those, of course, sound like securities. But this is not the NFT people expect to find on OpenSea, NFT.io, and other marketplaces, right?”
Tan told Cointelegraph that there may be legal grounds to classify very specific categories of NFTs as securities. However, the conversation should be “carefully tailored” to those aspects. If not, the agency risks scaring away content creation and stifling experimentation with the new technology.
The lawyer explained that these Wells notices that the SEC has issued only “start guessing games” and do not provide any clarity about the rules surrounding Web3 technology.
“They do everything but give us clear rules to follow. They are not productive at all. And the people hurt most are people who want to follow the rules and build communities in a proper way,” Tan added.
NFTs are a “technology” used in different ways
Tan described NFTs as a technology that can be used differently. The lawyer believes that any “vagueness” would stifle content creators. Tan added:
“If a regulator thinks that any specific category of NFTs should be treated differently, they should create specific and clear rules, and make it clear the rest are not affected.”
Tan added that if he takes a selfie, mints it as an NFT and offers to give it to people who want to claim one, he should be “absolutely free” to do it. “That’s the beauty of technology,” he said.
The lawyer also noted that if someone wanted to trade that selfie NFT on OpenSea, they should also be free to do so. “If a regulator thinks certain NFTs are problematic, they should be clear and not scare people from trading my selfie NFT,” he added.
When asked if the SEC’s move against OpenSea is warranted, the lawyer believes that it is not, since NFTs span from certificates to digital collectibles. It’s “impossible” that all these use cases can be regulated.
“Regulating NFTs makes about as much sense as regulating the internet. It’s so broad, you need to be more specific on what you aim to regulate — payments, pornography, e-commerce? — it is simply not productive,” Tan explained.
Artists seek clarification on NFT status
While the SEC continues to scrutinize the NFT space, some are trying to fight back. On July 30, attorneys representing NFT creator Jonathan Mann and filmmaker Brian Frye sued the SEC to seek clarification on which acts could trigger securities laws with regard to selling NFTs.
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