The SEC official said the model 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 royaltiesOscar 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.
He added: “The SEC never prohibited contracts where artists and creators get royalties from secondary sales of their work, not royalties from paper contracts or blockchain protocols.”Tan explained that the legal distinction becomes more complicated when NFTs promise shared profits from royalties to multiple holders beyond the original creator. Tan also urged regulators and market participants to apply traditional legal reasoning to new blockchain technologies.“Ask yourself, if this were done by pen and paper instead of blockchain, would there still be a regulatory issue? ” he said.“If none, slow down.”Source: Oscar Franklin TanRelated: SEC charges Unicoin crypto platform over alleged $100 million fraudOpenSea calls on the SEC to exempt NFT marketplaces from oversightWhile NFT royalties may not have been a controversial SEC issue, NFT marketplaces are a different case.
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 to business income,” which the SEC does not regulate.
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Author / Journalist: Cointelegraph by Ezra Reguerra
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