"Most NFTs are not securities," says SEC Commissioner Peirce.

## “No Securities Nature Even for NFTs with Loyalty”

On the 19th, SEC Commissioner Hester Peirce stated that many NFTs do not possess the characteristics of securities. This, however, is not an official view of the SEC.

Mr. Pearce argues that it is not a security, including NFTs designed to pay creators.

What is NFT?

An abbreviation for “Non-Fungible Token,” it refers to digital tokens that have unique and irreplaceable value. They are not only used for exchanging “digital items” in blockchain games but have also attracted attention as a groundbreaking means of returning benefits to rights holders (creators) in the “secondary distribution market,” which has been difficult to realize in the case of resale of high-priced artworks.

These NFTs operate through smart contracts, and they are programmed to automatically send a portion of the sale price as royalties to the creator of the work each time the NFT is resold.

For example, just as streaming platforms pay royalties to creators every time a song or video is played, it allows NFT artists to earn profits even after the initial sale of their works.

Mr. Perth pointed out and denied the securities nature.

The “creator royalty” feature included in some NFTs does not grant NFT owners rights or interests in the business entity, nor does it provide “types of benefits traditionally associated with securities.”

SEC officials have already made it clear that certain types of meme coins and stablecoins are not considered securities. This particularly applies to those that do not transfer economic rights to entities.

Mr. Parse emphasized this point again and stated the following.

It would be beneficial to permanently exclude assets that meet certain criteria, such as collectibles like meme coins and stablecoins, from the definition of “securities.” Cryptocurrencies that show no signs of external control or dependence on external organizations may also be excluded.

Cases where securities are problematic

Mr. Pearce expressed the view that most of the cryptocurrencies currently in circulation are not considered securities.

On the other hand, the ambiguity regarding securities arises when cryptocurrencies, which are not securities in themselves, are distributed during the early stages of the development of related networks or applications. In other words, this is when the asset is not yet functional, and the network or application is still in a centralized stage.

In such cases, the issues become more complex, but one way to address this is for the token issuer to show goodwill to the buyers by setting a lock-up period (a period during which the cryptocurrency cannot be sold) for their own and the initial buyers’ virtual currencies.

Additionally, it is considered that the authorities may establish a safe harbor system (in this case, a conditional exemption procedure from securities registration) for transactions involving cryptocurrencies that may be subject to investment contracts.