Note: The original text comes from crypto.news, written by Selva Ozelli and published on May 25, 2024!

This is the third of a three-part series of interviews Selva Ozelli conducted for crypto.news with William Quigley, cryptocurrency and blockchain investor and co-founder of WAX and Tether. Part one was about Sam Bankman-Fried’s prison sentence. Part two was about cryptocurrencies and banks. Part three was about the future of NFTs.

1. In the first part of our interview, you mentioned that you co-founded the Worldwide Asset eXchange (WAX), the first decentralized marketplace for trading virtual items in video games. Please introduce WAX, the first web3 gaming platform, to us.

WAX was built specifically to meet the needs of blockchain gamers and NFT collectors. We originally built WAX on the Ethereum blockchain, but the platform was expensive and slow, so we developed the WAX ​​Blockchain and WAX Wallet.

The WAX ​​blockchain has the largest NFT ecosystem with numerous NFT projects, more than 250 million NFT assets and more than 30,000 DApps. The WAX ​​platform processes more than 23 million transactions per day for more than 30,000 DApps and 15 million users. The WAX ​​blockchain is ultra-fast, secure, and carbon-neutral.

WAX is the world's leading NFT, DApp, and digital gaming blockchain based on the number of daily active users. The WAX ​​blockchain was designed from the outset to be an environmentally friendly blockchain, and we value "carbon neutrality" as more than just a statement, it has also been certified by the UK environmental organization Climate Care, demonstrating our commitment to minimizing our environmental footprint.

This year on Earth Day, we launched the Earthen WAX Walker NFT airdrop. For every Earthen Walker NFT claimed, WAX will plant a tree. This initiative combines our passion for innovative digital collectibles with practical actions to benefit the planet, not only providing a series of exclusive digital artworks, but also contributing to reforestation.

According to data from market research firm Zion Market Research, the NFT market size was valued at US$36.12 billion in 2023 and is expected to reach US$217.07 billion by the end of 2032, implying a compound annual growth rate of approximately 22.05% from 2024 to 2032.

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NFT industry prospects | Source: Zion Market Research

Today, the global NFT market cap is $68.68 billion, up 1.12% in the last 24 hours. I expect most of the growth to be in utility NFTs, collectible NFTs, and web3 game NFTs.

3. In 2021, art NFTs seem to be the biggest disruptor in the art world, with artists casting, exhibiting and auctioning art NFTs, and investors buying, selling and trading art NFTs. Nicole Sales Giles, vice president of Christie's auction house and director of digital art sales in the Post-War and Contemporary Art Department, said: "At Christie's, we see digital art as another collection category of contemporary art. The web3 art community is working together to create something very special. I believe that in the future, the art world will look back on the camaraderie between today's artists, builders, curators and collectors as 'when it all began.'" What are your thoughts and opinions on the future of art NFTs?

Last year, the global art market fell 4%, with annual sales of $65 billion, most of which came from the sale of a few works of art. Art NFTs may be handled by global art companies such as Christie's, Sotheby's and Phillips.

At WAX, we focus on collectible and gaming NFTs, which have a high volume of transactions among owners. We hope that our Earthen WAX Walker NFT series of digital collectibles will generate strong interest among collectors so that we can plant more trees.

4. Collectible NFT gains will be taxed at a rate of 28%, which is higher than the current capital gains rate. What do you think about the higher tax rate for collectible NFTs? Do you think the higher tax rate will hinder investment in collectible NFTs?

In 2020, the global collectibles market was valued at over $360 billion and is expected to grow substantially at about 4% between 2022 and 2028. Therefore, the high tax rate of 28% suggests that the IRS expects a substantial growth in the field of collectible NFT sales and therefore wishes to tax them at a rate higher than the current capital gains tax rate.

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Global Collectibles Market | Source: UnivDatos

5. The IRS recently released a draft of the 1099-DA tax form. Jonathan Cutler, a senior manager in Deloitte’s Washington National Tax Team who advises on information reporting for digital assets, said: “Under the proposed digital asset reporting regulations in August 2023, an NFT would be classified as a reportable asset if it is a ‘digital representation of value recorded on a cryptographically secure distributed ledger (or any similar technology)’. In April of this year, the IRS released a draft tax form that can be used to report NFTs or other digital assets - the 1099-DA tax form. Importantly, the cover page of the tax form states that this early draft is based only on proposed regulations and may be modified based on public comments, and the number of public comments seems to be large. Until the IRS and the Treasury Department digest these comments, it will be difficult to glean meaningful information from this draft or other tax forms to understand the final scope of the definition of “digital assets” for reporting purposes. Do you have any comments on the draft 1099-DA tax form applicable to NFTs?

If the 1099-DA draft is finalized in its current form, the NFT market will need to respond to it. After all, collectible NFTs are taxed at a higher rate.

6.NFT appears to be the next wave of enforcement actions by the SEC in the digital asset space. Last year, the SEC classified two NFT projects as securities. In August 2023, the SEC charged Impact Theory, LLC, a Los Angeles-based media and entertainment company, with conducting an unregistered offering of crypto-asset securities in the form of NFTs. Impact Theory raised approximately $30 million from hundreds of investors by claiming to be the next Disney, your former employer. Two weeks later, in September 2023, the SEC filed charges and reached a settlement with Stoner Cats 2, LLC (SC2), determining that the NFT called Stoner Cats issued by SC2 (which raised $8 million) was a security, and therefore SC2 was involved in an unregistered securities offering. What do you think of the SEC's enforcement actions in the NFT space?

I was not previously aware that the SEC had reached settlements with Impact Theory and the animated web series Stoner Cats produced by Mila Kunis and Ashton Kutcher.

However, in my opinion, in both cases, the NFT offering documents drafted by their lawyers were poorly written. The three major factors that may cause NFTs to be classified as securities are: subdividing NFTs, providing passive income, or participating in governance (such as staking). Therefore, the SEC determined that these NFTs were offered and sold to investors as investment contracts and were securities. These NFT projects violated federal securities laws because they offered and sold NFTs to the public without registration, and such offerings would not be exempt from registration in other cases.

Given the regulatory compliance issues involved in issuing securities, this classification should be avoided and the characteristics and offering documents of NFTs should be carefully considered before launch.

*Friendly reminder: This article is for popular science purposes only and does not constitute any investment advice!