SEC Commissioner Peirce: Most NFTs, Including Creator-Reward Models, Aren't Securities

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Post on May 22, 2025

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SEC Commissioner Peirce: Most NFTs, Including Creator-Reward Models, Aren't Securities

The crypto world breathed a collective sigh of relief this week as SEC Commissioner Hester Peirce clarified the agency's stance on Non-Fungible Tokens (NFTs). In a significant development for the NFT market, Commissioner Peirce, often dubbed the "Crypto Mom" for her relatively pro-crypto stance within the SEC, stated that most NFTs, even those incorporating creator-reward models, likely do not meet the definition of a security under U.S. law.

This statement offers much-needed clarity amidst the ongoing regulatory uncertainty surrounding the rapidly evolving NFT landscape. Many projects have incorporated mechanisms rewarding creators with royalties on secondary sales, a feature that previously raised concerns about whether these NFTs constituted unregistered securities offerings.

The Howey Test and its Implications for NFTs

The SEC's determination of whether an asset is a security hinges on the Howey Test, a four-part test that examines whether an investment involves:

1. An investment of money: This is generally straightforward in the context of NFTs.
2. In a common enterprise: This is where the complexity arises for NFT projects. Commissioner Peirce suggests that simply sharing in royalties doesn't automatically create a common enterprise.
3. With a reasonable expectation of profits: This aspect also requires careful consideration. While some NFT projects may promise significant returns, the mere possibility of future appreciation in value isn't sufficient.
4. Derived from the efforts of others: This element is crucial. If the value of the NFT primarily depends on the efforts of the creators or a centralized entity, it's more likely to be considered a security. However, Peirce's comments indicate that passive royalty payments alone don't necessarily fulfill this criterion.

Peirce's Emphasis on Decentralization and Utility

Commissioner Peirce emphasized the importance of decentralization and the utility of the NFT itself. NFTs that offer genuine functionality beyond mere speculation are less likely to fall under securities regulations. She pointed out that many NFTs provide access to exclusive communities, virtual goods, or other tangible benefits, thereby differentiating them from purely investment-driven assets. This is a critical distinction that developers should carefully consider when designing their projects.

Creator-Reward Models: A Grey Area Clarified?

The inclusion of creator-reward models in many NFT projects has been a major point of contention. These models, which distribute a percentage of secondary sales to the original creator, raised concerns about whether they constituted an investment contract. However, Commissioner Peirce's statement suggests that these models, in and of themselves, don't automatically trigger securities laws. The key, she indicated, lies in the overall structure and functionality of the NFT project.

What This Means for the NFT Market

This clarification from Commissioner Peirce provides a much-needed boost of confidence to the NFT market. While it doesn't provide a definitive "one-size-fits-all" answer, it offers significant guidance for developers and investors alike. It suggests a path towards greater regulatory certainty, potentially fostering further innovation and growth within the NFT ecosystem. However, it is crucial to remember that each project must be evaluated on a case-by-case basis, and seeking legal counsel is always recommended.

Key Takeaways:

• Most NFTs are not securities according to Commissioner Peirce.
• Decentralization and utility are crucial factors in determining whether an NFT is a security.
• Creator-reward models alone do not automatically classify NFTs as securities.
• The Howey Test remains the central framework for determining securities classification.
• Seek legal counsel for specific guidance on your NFT project.

The ongoing evolution of NFT technology and its regulatory landscape requires constant vigilance. This latest statement from Commissioner Peirce is a significant step towards clarifying the regulatory path forward, but the journey towards complete certainty continues.