Can NFT’s be considered securities?
2021 is the year of the Non-Fungible Tokens (NFT’s) boom and that is why there are many doubts about their regulation and how this type of crypto assets should be regulated by the authorities. To elucidate whether an NTF can be considered as a security for financial legislation purposes, it is necessary to understand what an NFT is.
NFT’s are considered unique tokens or digital assets, irreplaceable by others of the same species, since each one contains unique characteristics that give it an exclusive value. The clearest example is to equate it with a work of art, although a painting is created by the same elements, wood, canvas, and ink, the exclusivity, and value it is linked to the composition created by the artist, so a work of an artist without recognition does not have the same value as a painting by Monet, despite being created from the same elements. The same happens with NFT’s and it is because of these characteristics that this type of crypto assets have been used to trade “digital art” or irreplaceable digital goods, although it is not their only use.
Now, the explosion of NFT’s this year has caught the attention of regulators and that is why it is necessary to establish the type of regulation that must be observed when carrying out operations with NFT’s.
For most financial authorities, securities are financial instruments authorized by them, which represent a right in favor of their holder, issued in series or mass, negotiable in a regulated market, and whose value is attached to the result of a company, a business, or a future activity.
Having analyzed in general terms the characteristics of NFTs and securities, is it possible for the financial authorities to consider an NFT as security?
The first answer that comes to mind is that NFTs are not securities, since unlike, for example, a Security Token, each token is unique, so although it can be part of a series of tokens of the same collection, each one has particular characteristics whose value in a secondary and future market will not depend on the token issuer’s business management, furthermore, the owner of the NFT, although he will be able to enjoy and dispose of the token, as a general rule, will not receive any fruit or economic return as a consequence of an effect outside the intrinsic value of the token, i.e. the owner may have some economic benefit derived from speculation and market appetite to acquire an NFT of a particular series, as an example the Bored Apes series of NFTs.
It is important to note that each jurisdiction has specific rules for the treatment of securities and crypto assets, so if an NFT contains the characteristics of a security or a public offering it will be necessary to observe the applicable financial legislation for the issuance of securities even though its nature is the NFT.
Diego A. Ramos Castillo
dramos@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Antonio Casas Vessi
acasas@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Paulina Martínez Chávez
pmartinez@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Frida Sofía Rojas Cuéllar
srojas@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Rodrigo Ramos Hopkins
ramosr@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
Daniela Morales González
dmorales@rrs.com.mx
RAMOS, RIPOLL & SCHUSTER
