• Non-Fungible Tokens (NFTs) are securities, and the U.S. Securities and Exchange Commission (SEC) will eventually recognize and regulate them.
• The art market has always been a securities market, but the physical object got in the way of recognizing it. NFTs eliminate the object and enable collectors to trade ledger entries directly.
• Rather than fear SEC regulation, the NFT industry should embrace it, as it will likely lead to a light touch in terms of regulation.
The non-fungible token (NFT) market is a revolutionary technology that has the potential to revolutionize the way we trade digital assets, and it’s no wonder that the industry is growing rapidly. However, many participants in the NFT market are fearful that the U.S. Securities and Exchange Commission (SEC) will eventually recognize and regulate NFTs as securities.
Although this may seem like something to be feared, it is actually something that should be embraced, as it is inevitable and desirable. To understand why this is the case, it is important to look at the art market and how it functions.
The art market is a securities market, in the sense that when someone buys an artwork, they are buying an entry on an artist’s catalogue raisonné, or the list of all the artworks attributed to that artist. This ledger entry is usually accompanied by a physical object, such as a canvas or a sculpture, but it is the ledger entry that is actually valuable and not the object itself.
This is because if the connection between the ledger entry and the object is broken, then the object is rendered worthless, even though it hasn’t changed physically. This shows that the object is just a way to enable the sale of the ledger entry, much like a bearer bond.
NFTs work in a similar manner, as they eliminate the need for a physical object and enable collectors to trade ledger entries directly, which is much more efficient and cost-effective.
Rather than avoid SEC regulation, the NFT industry should embrace this categorization, as it is inevitable and desirable. This is because once the SEC understands how the NFT market works, it is likely to regulate with a light touch. This is beneficial for the industry, as it will lead to greater transparency and allow for more efficient trading.
In conclusion, the NFT industry should not be afraid of SEC regulation, as it is inevitable and desirable. This is because it will lead to greater transparency and allow for more efficient trading. Therefore, rather than fear SEC regulation, the industry should embrace it.