SEC’s Hester Peirce Clarifies NFT Royalties Don’t Make Tokens Securities

NFTs and Creator Royalties Not Necessarily Securities United States SEC Commissioner Hester Peirce described how the majority of NFTs—especially those being employed to pay creators royalties—are not securities at the federal level. Speaking recently, Peirce emphasized that these NFTs are more similar to models for creative compensation than they are investment products. Just as streaming platforms reward the creator of a video or song every time a user listens to it, an NFT can make creators reap the benefits of a boost in the value of their work after selling it once,” Peirce said. She added that those payment mechanisms involving royalties do not give the holder of an NFT any interest in a business or its profits, untangling them from securities. Legal Analysts Say Media Got It Wrong Oscar Franklin Tan, Atlas Development Services’ best attorney, criticized the way media interpreted Peirce’s statement. According to him, the SEC never classed NFT royalties as securities in the first place. That is not contentious, and it was never considered to be a security,” Tan explained. He stated royalties are business revenue, not returns on investment. “The creator or artist is not an investor, not a passive third party to the NFT,” he added. Tan reiterated that the distinction applies only where royalties are being offered to a mass of token holders besides the creator, which may change legal attention. Blockchain Law Must Adhere to Traditional Logic Tan appealed to regulators to employ sound legal reasoning regardless of the technology employed. “Ask yourself, if this was done with pen and paper instead of blockchain, would there still be a regulatory issue? If not, slow down,” he advised. OpenSea Invites SEC to Shed Light on Marketplace Guidelines The debate on NFTs as securities doesn’t end with royalties. In 2024, the SEC issued OpenSea a Wells notice, which suggested that NFTs on the platform could be unregistered securities. However, the SEC officially closed the investigation on Feb. 22, 2025. OpenSea welcomed the action and followed up with a letter to Commissioner Peirce. OpenSea attorneys, in their letter, argued that NFT exchanges are not capable of being classified as exchanges or brokers under current securities law because they do not execute trades or act as middlemen.

Source: BTC Pulse