SEC Commissioner Peirce: Most NFTs, Even Creator-Rewarding Ones, Aren't Securities

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Post on May 22, 2025

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SEC Commissioner Peirce: Most NFTs, Even Creator-Rewarding Ones, Aren't Securities

Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission (SEC), has once again voiced her dissenting opinion on the agency's approach to regulating non-fungible tokens (NFTs). In a recent speech and subsequent commentary, she argued that the SEC's current stance, which often classifies NFTs as securities, is overly broad and stifles innovation in the burgeoning digital asset space. Peirce maintains that most NFTs, including those with mechanisms designed to reward creators, likely do not meet the Howey Test, the established legal framework for determining whether an asset is a security.

This statement marks a significant divergence from the SEC's recent actions, which have seen several NFT projects face regulatory scrutiny. The agency's chairman, Gary Gensler, has repeatedly emphasized a firm stance on classifying many crypto assets, including NFTs, as securities if they meet certain criteria. This difference of opinion within the SEC highlights the ongoing debate and uncertainty surrounding the regulatory landscape for NFTs.

The Howey Test and NFT Classification:

The Howey Test, a cornerstone of securities law, defines an investment contract as an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others. Commissioner Peirce believes that many NFT projects, even those with royalty mechanisms that pay creators a percentage of secondary sales, fail to meet this criteria. She argues that simply receiving royalties doesn't automatically equate to an expectation of profits derived from the efforts of the NFT project developers. Instead, she emphasizes the importance of considering the specific facts and circumstances of each individual NFT project.

Peirce's Call for a More Nuanced Approach:

Commissioner Peirce advocates for a more nuanced and less restrictive regulatory approach to NFTs. She believes that the SEC's current broad-stroke classification discourages innovation and harms smaller creators. Her position emphasizes the need for clearer guidelines and a more proportionate regulatory response tailored to the specific characteristics of different NFT projects. She suggests that a more flexible framework could allow for legitimate NFT projects to flourish without being unnecessarily burdened by securities regulations.

What This Means for the NFT Market:

Peirce's dissenting viewpoint injects a degree of uncertainty into the future of NFT regulation in the United States. While her arguments haven't changed the SEC's current stance, they highlight a significant internal disagreement and could influence future regulatory decisions. For NFT creators and developers, this ongoing debate underscores the importance of seeking legal counsel to ensure compliance with existing regulations, despite the lack of clarity.

Key takeaways:

• Divergent SEC opinions: Commissioner Peirce's stance contrasts sharply with the SEC Chairman's, highlighting internal divisions on NFT regulation.
• Howey Test application: The debate centers on the application of the Howey Test to various NFT models, particularly those with creator royalty mechanisms.
• Call for nuanced regulation: Commissioner Peirce advocates for a more flexible approach that considers individual project specifics rather than a blanket classification.
• Uncertainty for the NFT market: The ongoing debate creates uncertainty for NFT creators and investors, emphasizing the need for careful legal consideration.

This ongoing debate is crucial for the future of the NFT market and the broader cryptocurrency landscape. The lack of clear, consistent regulation remains a significant challenge, and the differing opinions within the SEC itself underscore the complexity of applying traditional securities laws to this rapidly evolving technology. As the SEC continues to grapple with these issues, it remains vital for stakeholders to stay informed about the latest developments and seek expert legal advice.