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Another regulatory obstacle has come in the way of the NFT space as the US Securities and Exchange Commission comes after one of its earliest pioneers. The SEC has slapped a Wells notice on the CyberKongz NFT project for purportedly selling uninsured securities and then shall take its enforcement action.
CyberKongz has hit back by saying that the SEC is completely ignorant of blockchain technology and how NFTs actually work.
SEC’s Allegations Against CyberKongz NFT
The Wells notice has now become concentrated on the Genesis Collection, being CyberKongz’s inaugural collection that was launched in March 2021. It’s a collection of 1,000 pixelated gorilla-themed profile picture (PFP) NFTs that sold out extremely quickly in the earliest days of the boom surrounding NFTs.
According to the SEC, the April 2021 activity may have been related to an issue of securities-related violation regarding the Genesis Collection. However, CyberKongz argues that it was a “contract migration” and not a sale.
This misunderstanding has CyberKongz NFT questioning the SEC’s interpretation of blockchain operations. They said, “If they cannot distinguish between a primary sale and a contract migration, what hope do we currently have for a clear regulatory pathway going forward?”
The Howey Test and NFT Industry Concerns
The SEC continues to rely on the Howey Test, a framework that determines whether an asset qualifies as a security. Since this test was used for investment contracts, many are in disagreement when applying it to NFTs.
CyberKongz is not alone in its criticism of the SEC’s approach. OpenSea, the largest NFT marketplace, also got a Wells notice earlier this year for some NFTs on their platform being considered securities. OpenSea’s leadership reportedly argued that the allegations stifled the creative freedom of digital artists.
For CyberKongz NFT, the enforcement action epitomizes what the project called an “anti-crypto agenda,” underlining the continued tension between the crypto industry and U.S. regulators.
CyberKongz Genesis Collection: A NFT Pioneer
The Genesis Collection was one of the first and most iconic PFP NFT projects by artist Myoo. Its 34×34 pixelated artwork introduced the concept of NFTs as profile pictures-a trend that has continued to rule the space.
With a mint price of 0.01 ETH the collection was affordable and sold out fast. Today the Genesis Collection is a landmark in NFT history.
Conclusion: Crypto Space Implications
The action against CyberKongz shows an increasing enforcement pressure by the SEC against the crypto and NFT markets. The ambiguity of regulations has created uncertainty and stifled innovation in the space, many say.
CyberKongz has promised to fight back and says it hopes future governments will “take a more balanced approach to regulating crypto.” Until then, the case highlights how this fast-changing industry urgently needs more clearly defined rules.
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FAQs
1. What are NFTs?
NFTs or non-fungible tokens are digital assets that exist on a blockchain. They signify to whom digital and physical items such as artwork, music, or virtual property belong and are different from cryptocurrencies since these can be traded and have similar features that render them unique.
2. Why did the SEC send CyberKongz a Wells notice?
The SEC says CyberKongz NFT did unregistered securities offerings with activities related to the Genesis Collection. CyberKongz disagrees and says the SEC can’t tell the difference between a primary sale and a contract migration.
3. What is the Howey Test?
The Howey Test is a legal test under which an asset may or may not be classified as a security. It looks to see whether there is a common enterprise in the nature of an investment, an expectation of profit, or efforts controlled mainly by others.
4. How did CyberKongz impact NFTs?
Launched in 2021, CyberKongz’s Genesis Collection introduced NFTs for profile pictures and started the trend that would become one of the biggest in the NFT market.
