Crypto startups could soon raise funds via NFT

Commissioner Hester Peirce, now at the head of the SEC's crypto working group, announced that projects using NFTs as a financing mechanism could soon be exempt from securities regulation.

The U.S. Securities and Exchange Commission (SEC) may soon exempt projects using non-fungible tokens (NFTs) as a financing mechanism from securities regulation, according to Commissioner Hester Peirce.

Speaking at the SEC’s first crypto roundtable on Friday, Peirce, who heads the agency’s crypto working group following Gary Gensler’s resignation, indicated to Decrypt that such projects could benefit from an exemption, focusing on issues arising from the use of NFTs for fundraising.

This follows a statement by the SEC yesterday clarifying that cryptocurrency mining through proof-of-work was not included in its definition of securities.

According to Peirce, who is leading these efforts alongside acting chairman Mark Uyeda, NFTs could be the next category of assets to benefit from a similar exemption.

"We could do this for NFTs. If we could provide a framework or benchmarks for NFT issuers, I think that could be very helpful," she said.

NFTs, which peaked in late 2021, generating a market of nearly $25 billion, have been used by many projects as an innovative mechanism for financing their endeavors, presenting an alternative path to traditional fundraising methods.

However, despite this openness, Peirce noted that not all NFTs would automatically be exempt from securities regulation.

"We could have an NFT that would be a tokenized security, and it could be structured like an NFT. Obviously, that would not be excluded," she explained.

This distinction is crucial for comprehending the scope of the future exemption, which would mainly target art NFTs and those offering benefits such as memberships, exclusive access to content, or merchandise.

A similar initiative is also underway in Congress, where some lawmakers are urging the inclusion of a provision legalizing the sale of NFTs for profit in the cryptocurrency bills currently being discussed in the House of Representatives and the Senate.

Therefore, if the SEC soon issues a statement on NFTs, similar to those recently made regarding proof-of-work mining and meme coins, it could herald the beginning of a new era for financing blockchain projects through non-fungible tokens.