United States Securities and Exchange Commission (SEC) Commissioner Hester Peirce said many non-fungible tokens (NFTs), including those with mechanisms to pay creator royalties, likely fall outside the purview of federal securities laws.
In a recent speech, Peirce said NFTs that allow artists to earn resale revenue do not automatically qualify as securities. Unlike stocks, NFTs are programmable assets that distribute proceeds to developers or artists. The SEC official said that mirrors how streaming platforms compensate musicians and filmmakers.
“Just as streaming platforms pay royalties to the creator of a song or video each time a user plays it, an NFT can enable artists to benefit from the appreciation in the value of their work after its initial sale,” Peirce said.
Peirce added that the feature does not provide NFT owners any rights or interest in any business enterprise or profits “traditionally associated with securities.”
SEC never prohibited NFT royalties
Oscar Franklin Tan, chief legal officer of Enjin core contributor Atlas Development Services, told Cointelegraph that the recent remarks by Peirce on NFTs and creator royalties have been widely misunderstood.
Peirce had clarified that NFTs that send resale royalties to artists are not necessarily securities, a view Tan says is legally sound but mischaracterized in some media reports.
“So Hester Peirce said that an NFT that sends royalties back to the creator after a sale is not a security. This is correct, but the way some media reported this is completely out of context,” Tan told Cointelegraph. “The actual context is that this is not controversial, and it was never considered a security.”
The lawyer said US securities law focuses on regulating investments and not compensating creators for their work.
“The artist or creator is not an investor, not a passive third party in the NFT,” he said, noting that royalty payments are not considered investment income.
Instead, Tan told Cointelegraph that this type of earning is “analogous…
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