Can JPEG be a security?FTX certainly thinks so.
Brett Harrison, president of FTX.US, explains that tokens that offer royalties are starting to look like securities.
As it prepares to launch its Solana-focused NFT marketplace, cryptocurrency exchange FTX has announced it will stay away from projects that offer royalties.
A newly released FAQ states, “We will reject any NFTs from collections/projects that distribute or advertise the distribution of royalties to NFT holders.”
Royalties are a relatively new concept when it comes to NFT. With a plethora of projects, many are looking to add value to their token holders and trying to figure out how to do so. One way is to give back to token holders a portion of the fees incurred when NFTs are bought and sold in the marketplace – known as royalties. The idea is that this should incentivize buyers to hold for the long term. But the marketplaces are concerned that this could put JPEGs in violation of U.S. securities laws.
Brett Harrison, president of FTX.US, said, “We will list NFT projects that pay royalties to artists/creators, but we cannot list projects that distribute royalties from the sale of collections to NFT holders. A token that guarantees you a percentage of the revenue stream from the sale of the asset pool is starting to look like a security.”
OpenSea, the ethereum-focused NFT marketplace, has similar concerns. Its terms and conditions identify a range of NFT types that may not be suitable for its platform, including those that are redeemable financial instruments and those that “entitle the owner to a financial reward.”
Last week, these concerns led OpenSea to halt trading in the Turtle DAO NFT pool – which grants tokens to NFT holders – although it did not specify which specific terms the project was violating.