- The NFT world can change in a blink of an eye. This week, the no-longer upstart NFT marketplace Blur seized the majority of marketshare long held by OpenSea.
So how has Blur wrested control over the marketshare?
It appears to be driven by four main factors:
- No trading fees charged to customers. (0%)
- A lax policy on creator royalties on prior-existing/immutable NFTs (only 0.5%, up from the prior 0% policy), which means traders keep all of the sales amount and the creators on immutable NFTs may get next to nothing.
- An incentive program in which Blur airdrops free BLUR tokens to people who trade on Blur, although apparently not to U.S. residents due to concerns about U.S. securities regulations (more on that below).
- Apparently pumping of volume by NFT whales, plus the lure of what’s called “airdrop farming” by making riskier bids for NFTs to earn more points on Blur.
To the average customer, this probably sounds like a fantastic deal, like a free lunch and a free dinner.
The Growing Risk of U.S. Securities Enforcement on Tokens, NFTs
But one cannot help but look around and see all the ominous signs of the growing risks of securities enforcement of some tokens and NFTs. The following summary is a recitation of facts and the legal developments, not an analysis of Blur or any other NFT marketplace or project. (I am not a securities lawyer, and, nothing on this website constitutes legal advice.)
Just to highlight a few:
- The SEC has taken the position that FTX’s platform tokens FTT are unregistered securities in violation of U.S. law, despite FTX’s effort not to sell FTT to people in the U.S. [More here.]
- Just yesterday, in the securities class action Dapper Labs, Judge Victor Marrero denied the company’s motion to dismiss the case. Judge Marrero found that the complaint alleged a plausible scenario that NBA Top Shot Moments NFTs can be found at trial to be unregistered securities (and not simply a collectible). Ominously, the court looked to the entire arrangement and the interplay of the FLOW tokens–even though they are not sold in the U.S.–and the private FLOW blockchain on which NBA Top Shot Moments are traded. The court explained: “The interplay among FLOW, the Flow Blockchain, and Moments is necessary to the totality of the scheme at issue. Plaintiffs have alleged that, without FLOW tokens, no transactions on the Flow Blockchain can be validated.” The court did caution that its ruling was “narrow”: “Not all NFTs offered or sold by any company will constitute a security, and each scheme must be assessed on a case-by-case basis.” [Judge Marrero’s decision.]
- The SEC charged that the crypto exchange Kraken’s staking program for customers (committing crypto to earn financial rewards) involved unregistered securities. [More here.]
- In the potential class action Real v. Yuga Labs, the plaintiffs allege that Yuga Labs’ NFTs and the token ApeCoin are unregistered securities. [More here.]
- The SEC has an ongoing investigation of Yuga Labs. [More here.]
- The SEC has an ongoing enforcement action against Ripple that charges that the cryptocurrency XRP constitute unregistered securities. [More here.]
- The New York Department of Financial Services sued exchange CoinEx for not registering to sell crypto allegedly in violation of federal and state laws. [More here]
- The SEC opposed Binance.US’s intended acquisition of the assets of defunct lender Voyager, in part based on the possibility that Voyager’s VGX token may be unregistered securities. [SEC objection]
In a subsequent post, we will take a closer look at how the collection of creator royalties have been undermined. For both NFT projects and NFT marketplaces, no two issues–potential securities regulation and circumvention of creator royalties–have the capability of upending the dynamics of the NFT market.