Why FTX’s upcoming marketplace is avoiding NFTs that offer royalties

Quick Take

  • Can JPEGs be securities? FTX certainly thinks so.
  • FTX.US president Brett Harrison explains that tokens that offer royalties start to look like securities.
advertisement

As it gears up to launch its Solana-focused NFT marketplace, crypto exchange FTX has announced it will steer clear of projects that offer royalties.

A newly published FAQ states, “we will reject any NFT from a collection/project that distributes or advertises the distribution of royalties to NFT holders.”

Royalties are a relatively new concept when it comes to NFTs. With an overabundance of projects out there, many are looking to add value to their token holders and experimenting with how they can do so. One way is to give back a portion of the fees generated when NFTs are bought and sold on marketplaces to token holders — known as royalties. The idea is that this should incentivize buyers to hold for the long term. But marketplaces are concerned that this could make the JPEGs fall foul of U.S. securities laws.

FTX.US president Brett Harrison said, “We will list NFT projects that pay royalties to the artists/creators, but we can’t list those projects which distribute the royalties from collection sales to NFT holders. A token which guarantees you a percentage income stream from the sales of a pool of assets starts to look like a security.”

Ethereum-focused NFT marketplace OpenSea has similar concerns. Its terms and conditions identify a range of types of NFTs that might be unsuitable for its platform, including those that can be redeemable for financial instruments and ones that “entitle owners to financial rewards.” 

Last week, these concerns led OpenSea to stop the buying and selling of the Turtle DAO NFT collection — which awards tokens to NFT holders — although it didn’t state which specific term the project violated.


© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Trending Stories

Get Your Crypto
Daily Brief

Delivered daily, straight to your inbox.

The Era of dFMI for Institutional Digital Asset Markets

Post-trade in capital markets today operates primarily based on provision of balance-sheet to off-set counterparty risk, either directly or indirectly, via settlement agents, CCPs and CSDs etc.  The issues with this ‘hub and spoke’ model are well known, including the resulting massive duplication of data, bifurcated processes, concentration of risk and subsequent deployment of capital and resources that could be better utilized. 
Read Full Story
Sponsored Post

Retail traders are here to stay, says eToro's US CEO

On this episode of The Scoop, eToro's newly appointed US lead Lule Demmissie explained why she doesn't see retail's newfound presence in the market subsiding anytime soon and how eToro plans to capitalize on growing the business across cryptocurrencies and stock trading.
Read Full Story
Jan 26, 2022, 4:23PM UTC
More