Newsletter #164: New Rules in South Korea
Also, last week's poll results are surprising.
This week’s featured collector is Toomcooy
Toomcooy is an artist that is using Lazy to showcase their original, hand-drawn comic characters. Check out their collection at lazy.com/toomcooy
The results of last week’s poll: What do you think will happen with prices at Sotheby's upcoming auction of rare Bored Ape NFTs?
We were surprised by last week’s poll which revealed mixed expectations for the upcoming Sotheby's auction of rare Bored Ape NFTs, with a strong 42% of people anticipating disappointing results. While 37% believe prices will be solid but not reach new highs, a notable 21% still see potential for record-breaking sales. This divergence suggests an underlying tension between market skepticism and persistent optimism, with the auction serving as a key barometer of sentiment. The auction's outcome will undoubtedly offer valuable clues about the near-term direction of the NFT space.
South Korea Issues Guidelines to Regulate Certain NFTs as Cryptocurrencies
South Korea's Financial Services Commission (FSC) has released guidelines to clarify the regulatory status of NFTs. The guidelines aim to differentiate between NFTs with unique qualities and those that may be classified as cryptocurrencies or securities. NFTs that are mass-produced, exchangeable, fractionalized, or used for payments may be regulated as cryptocurrencies, while non-transferable tokens with little to no economic value would be considered regular NFTs. The distinction will be made on a case-by-case basis, without a single absolute standard for interpretation.
These guidelines precede South Korea's first crypto-focused regulatory framework, the Virtual Asset User Protection Act, which will be fully effective from July 19. The law aims to combat illicit market activities and requires cryptocurrency service providers to safeguard deposits and enroll in insurance programs to protect user funds.
For NFT collectors, understanding the regulatory landscape in different jurisdictions is crucial. As governments worldwide grapple with regulating the evolving NFT and cryptocurrency markets, collectors should stay informed about the potential implications of these regulations on their holdings. The South Korean government's efforts to provide clarity and protect investors may serve as a model for other countries, but the case-by-case approach to classifying NFTs may lead to even more uncertainty.
Learn more at The Block.
Dapper Labs' Settlement Offers Guidance for NFT Issuers to Avoid Securities Liability
Dapper Labs, the creator of NBA Top Shot Moments and CryptoKitties, has agreed to settle a putative class action suit alleging that its NBA-endorsed NFTs were offered and sold as unregistered investment contract securities. The settlement, subject to court approval, provides valuable guidance for NFT issuers seeking to avoid securities liability. As part of the settlement, Dapper has agreed to decentralize the Flow blockchain, allow Moments to be sold on other marketplaces, improve withdrawal processes, relinquish control of reserve Flow tokens, and train personnel on compliant marketing. Although not setting a legal precedent, this settlement, along with two SEC settlements (Impact Theory and Stoner Cats), highlights key factors NFT issuers should be cautious about, including control over the native blockchain, exclusive marketplaces, using revenues to develop products, and marketing suggesting investment value.
For NFT collectors, understanding the structure, technology, and marketing of NFT projects is crucial in assessing the risk of an NFT being considered a security. The Dapper Labs settlement provides a helpful framework for navigating the complex intersection of NFTs and securities law.
Go deeper on this analysis at K&L Gates.
This week’s poll: Should governments regulate the NFT market?
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