The landscape of NFTs and their legal status continues to evolve, with recent comments from SEC Commissioner Hester Peirce shedding light on the topic. In a speech delivered earlier this month, Peirce clarified that non-fungible tokens (NFTs), even those incorporating mechanisms for creator royalties, likely do not fall under federal securities laws. This distinction is pivotal for artists and developers who utilize NFTs to monetize their works.
Understanding NFT Royalties
NFTs have revolutionized the way creators interact with their audience and profit from their work. Unlike traditional financial securities, NFTs are programmable assets that can automatically distribute royalties to creators each time their work is resold. Peirce drew parallels between this system and the way streaming platforms compensate musicians, emphasizing that NFT royalties do not grant owners any stake in a business or its profits—key characteristics that typically define securities.
Oscar Franklin Tan, chief legal officer of Enjin core contributor Atlas Development Services, echoed Peirce’s sentiments in an interview with Cointelegraph, highlighting the widespread misunderstanding of Peirce’s remarks. He pointed out that the media had taken her comments out of context, clarifying that the SEC has never considered NFT royalties to be securities. According to Tan, these payments should be seen as analogous to business income rather than investment income, a distinction that exempts them from SEC regulation.
Complicated Legal Terrain
While Peirce’s statements offer some clarity, the line between NFTs and securities isn’t always straightforward. Tan noted that the legal complexities intensify when NFTs promise shared profits from royalties to multiple holders beyond the original creator. In such scenarios, the regulatory landscape becomes murkier, demanding careful consideration from both market participants and regulators. For a deeper dive into the regulatory implications, see our coverage of the SEC’s latest guidance.
Tan advised stakeholders to apply traditional legal reasoning to blockchain technologies, urging a cautious approach. “Ask yourself,” he suggested, “if this were done by pen and paper instead of blockchain, would there still be a regulatory issue? If none, slow down.” His advice highlights the need for a balanced and thoughtful approach to emerging technologies.
The Broader Context: NFT Marketplaces Under Scrutiny
While Peirce’s comments may ease concerns for individual creators, NFT marketplaces remain under the regulatory microscope. Last year, OpenSea, a leading NFT trading platform, received a Wells notice from the SEC, which suggested that NFTs traded on its platform could be considered unregistered securities. However, as of February 22, 2025, the SEC officially closed its investigation into OpenSea, marking a significant victory for the NFT industry.
Following the investigation’s conclusion, OpenSea’s legal team sent a letter to Peirce, arguing that NFT marketplaces should not be classified as brokers under U.S. securities laws. They contended that these platforms do not execute transactions or act as intermediaries, urging the SEC to explicitly state that NFT marketplaces do not qualify as exchanges under federal securities laws. This follows a pattern of institutional adoption, which we detailed in our analysis of corporate treasury investments.
Looking Ahead
As the NFT space continues to grow, Peirce’s comments offer a degree of reassurance to artists and developers navigating this new frontier. However, the evolving legal landscape poses ongoing challenges. Questions remain about how regulators will handle NFTs with shared royalty agreements and how marketplaces will operate under scrutiny.
While Peirce’s remarks clarify the SEC’s stance on certain aspects of NFT royalties, the road ahead is still fraught with uncertainties. As the crypto world watches and waits, the need for clear and consistent regulatory guidelines becomes ever more pressing. For now, creators can take solace in the fact that their royalties are not automatically seen as securities—at least for the moment.
Source
This article is based on: SEC’s Peirce says NFT royalties do not make tokens securities
Further Reading
Deepen your understanding with these related articles:
- The SEC Can Learn From the IRS in Making Regulation Simpler for Crypto
- UK’s FCA Seeks Public and Industry Views on Crypto Regulation
- U.S. Congress Braces for Intense Debate Over Crypto Legislation This Summer (openai)
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
