OpenSea, a leading NFT [non-fungible token] platform, has received a Wells Notice from the Securities and Exchange Commission (SEC).
A Wells Notice indicates that the SEC is recommending that the Commission pursue enforcement action against the target firm. While not conclusive, it is highly likely that the SEC will take legal action regarding alleged securities violations.
In a blog post, OpenSea questioned whether, or not, NFTs – which may be defined as digital collectibles, should be treated as a security. The company states;
“Cryptocurrencies have long been in the crosshairs of the SEC. But, by targeting NFTs, the SEC is diving into new, uncharted waters, with potentially harmful consequences for consumers, creators, and entrepreneurs alike.
We’re confident that OpenSea operates legally and that our users aren’t trading securities when they buy or sell NFTs using our platform. Our users engage with NFTs for many reasons, like purchasing a gaming item or avatar to use in a game, supporting a beloved artist, or boasting allegiance to their chosen sports team.”
The blog post continues by stating that the SEC’s actions will have a “chilling effect” on innovation while echoing a frequent opinion from the digital asset industry that the SEC is pursuing regulation by enforcement.
The SEC has a chequered past in pursuing enforcement actions against crypto firms. While acts of fraud and digital scams have been adjudicated successfully, some recent legal challenges, such as with Ripple, have not gone so well for the Commission. Pushing into digital collectibles could open up a Pandora’s box for the SEC, as markets for collectibles are pretty common, and any legal decision could have wide-ranging reverberations of collateral damage. While OpenSea makes a market in fractional digital assets, which leads to an argument that they are fungible, plenty of analog markets (think yachts, planes, homes, etc.) do the same.
Another twist is that Vice President Kamala Harris has been attempting to build bridges to the disaffected digital asset industry, which wants clear-cut rules but has been disappointed by both elected and appointed officials. The pursuit of OpenSea should eliminate any hope that the Democrats will reconcile with this sector of Fintech, as actions continue to speak louder than words.
Hope does spring eternal. OpenSea believes that the SEC could reconsider its stance, giving NFTs the “open-mindedness it deserves.”