NFT Market Facing SEC Probe

The United States Securities and Exchange Commission (SEC) is officially involved in an active investigation as a result of an increase in cyber scams tied to well-known NFT marketplaces and the overall industry.

The market may come off the heat as a result of the bullish move by US lawmakers.

Walk The Talk

The US Securities and Exchange Commission, led by SEC’s Chairman Gary Gensler, is investigating NFT builders and marketplaces that operate in conjunction with securities breach terms.

According to Bloomberg, the prime objective of the law enforcement action is to investigate whether certain non-fungible tokens (NFTs) breach the rules and are used to illegally generate money in the same way that regular securities are.

The SEC is investigating following a string of scandals involving stolen assets and attempted fraud on NFT marketplaces.

According to Bloomberg, agents in the SEC’s enforcement department have filed subpoenas in recent months seeking information about the issuing of NFTs.

The move is the SEC’s latest endeavor, led by Chairman Gary Gensler, to guarantee that the cryptocurrency market complies with the commission’s regulations.

While crypto loan products have been the subject of intense regulatory examination by the SEC in recent months, such as the Coinbase exchange incident, the action represents a significant shift in how the NFT area is handled.

The SEC and state regulators fined major crypto exchange BlockFi a record $100 million in February 2022 for failing to register products that offer clients hefty interest rates for lending their digital tokens.

Potentially Ongoing

According to sources familiar with the subject, the SEC is particularly aware and concerned on fractionalized NFTs, which involve breaking down assets into parts that may be readily bought and sold.

However, information demands from regulators do not always result in enforcement action.

“As the market has boomed, some NFT marketplaces have taken steps to remove projects that might put them in regulators’ crosshairs, such as those that offer royalties or that involve raising funds for a business,” the report highlighted.

The recent attack on OpenSea has sparked worry and increased awareness among cryptocurrency users.

Hundreds of NFTs were stolen on February 19.

According to the study, hackers took advantage of flexibility in the Wyvern Protocol, the open-source standard that supports the majority of NFT smart contracts, and stole 254 NFTs, including some of the most valuable on the market, such as Bored Ape Yacht Club and Decentraland NFTs.

Because NFTs are becoming more valuable, prominent platforms are becoming targets for hacker assaults.

An Overlooked Legal Angle

NFTs are growing more popular in the mainstream, as evidenced by the recent strong trend of tokenization of both digital and physical assets.

Despite the legal and financial obstacles that regulators and investors face, NFT is projected to usher in a revolution in many sorts of investment.

Although the NFT has enormous promise, it currently faces problems such as technological constraints, financial concerns, and, most importantly, a lack of a legal framework.

So far, no country has issued regulations to govern the asset type.

Some governments and countries, like the United States, the United Kingdom, Japan, Singapore, and Hong Kong, issued first rules that only specified security tokens rather than the whole NFT industry.

Many agencies in the United States are monitoring digital assets, but solely in terms of certain areas such as finance, commodities transactions, or taxes, and have not yet created an overall set of management standards.

Early NFT market participants face the most risk as a result of regulatory uncertainty.

The SEC has not yet provided any additional clarifications.

However, legal scrutiny of NFT is only a matter of time, as Gary Gensler suggested earlier this year that crypto exchanges would face extreme regulatory attention in 2022.

Perhaps Gensler should have made it clearer by specifically targeting non-fungible tokens?

Still, since there are numerous scammer initiatives preying on vulnerable victims, we knew that the day would come.