SEC Commissioner Hester Peirce: Most NFTs, Even Creator-Royalty Models, Aren't Securities

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Post on May 23, 2025

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SEC Commissioner Hester Peirce: Most NFTs, Even Creator-Royalty Models, Aren't Securities

The crypto world is buzzing after SEC Commissioner Hester Peirce offered a nuanced perspective on the regulation of Non-Fungible Tokens (NFTs), suggesting that most, including those with creator-royalty models, likely fall outside the definition of a security. This statement, delivered during a recent industry event, offers a glimmer of hope for NFT creators and projects navigating the complex regulatory landscape. However, Peirce's clarification is far from a blanket endorsement, emphasizing the importance of individual project assessment.

Peirce's Nuance on NFT Regulation

Peirce, often dubbed the "Crypto Mom" for her relatively pro-crypto stance within the SEC, argued that many NFTs don't meet the Howey Test, the primary legal framework used by the SEC to determine whether an asset qualifies as a security. The Howey Test considers whether an investment involves:

• An investment of money: Purchasing an NFT certainly involves a monetary investment.
• In a common enterprise: This is where Peirce's analysis becomes crucial. While some NFT projects might exhibit characteristics of a common enterprise, many do not. The mere existence of a shared platform or marketplace doesn't automatically equate to a common enterprise.
• With a reasonable expectation of profits: This is the most contentious point. Peirce suggests that while some NFTs might be sold with promises of future profits, the majority are purchased for their artistic merit, utility, or other non-investment purposes. The presence of creator royalties, often cited as a potential security feature, doesn't automatically change this assessment.

Creator Royalties and the Howey Test

The inclusion of creator royalties, a mechanism that pays the original artist a percentage of each subsequent sale, has been a point of contention. Some argued that this shared revenue stream constitutes a common enterprise, pushing NFTs into the realm of securities. Peirce, however, disagrees, stating that these royalties are often tied to the inherent value of the NFT itself and not indicative of an investment contract.

The Importance of Individual Assessment

While Peirce's comments provide welcome clarity, it's crucial to remember that her perspective doesn't grant blanket immunity to all NFTs. Each project must be evaluated individually based on its specific characteristics and the circumstances surrounding its sale. Projects promising significant returns or operating under a centralized structure that closely resembles an investment scheme are still likely to be considered securities.

Implications for the NFT Market

Peirce's statement could significantly impact the NFT market, potentially fostering innovation and encouraging further development. However, it doesn't eliminate the need for careful legal analysis. Projects should continue consulting legal experts to ensure compliance with evolving regulations. The lack of comprehensive, clear-cut legislation surrounding NFTs underscores the need for ongoing dialogue and collaboration between regulators and the crypto industry.

The Future of NFT Regulation

The SEC's approach to NFT regulation remains in flux. While Peirce's perspective provides a more lenient interpretation, it's only one voice within the commission. The agency's overall stance on NFTs continues to evolve, and further clarification is expected in the coming months and years. This dynamic situation requires all stakeholders – creators, investors, and developers – to stay informed and adapt to the ever-changing regulatory environment. The ongoing conversation surrounding NFT regulation will likely shape the future of this rapidly evolving digital asset class.