10 Points to Consider Before Releasing NFTs

With all the buzz around NFT’s, lets explore some points to consider to help determine whether you are releasing an NFT, or selling a Security.

As NFT’s continue to gain steam, this has drawn a lot of attention from fans, investors, and most importantly, regulators. Before you decide whether selling an NFT is the best move for your work, consider the following:

1. Non-fungible Tokens (NFTs) are unique blockchain tokens. Each one is valued differently depending on the uniqueness, value and ownership rights of the underlying digital asset.
2. If you are selling a digital art, a rare photograph, a documentary, a movie, a tweet, or any other non-securitized digital asset that you own, as an NFT, go for it. This is what the NFTs are for.
3. You can sell limited ownership rights with the NFT. For example, you can retain your reproduction rights or copyright on the underlying digital asset. The ownership rights that you sell with the NFT cannot be akin to an investment contract.
4. Remember an NFT just represents a (non-securitized) digital asset. Most of the NFTs just include a limited set of metadata (e.g., the URL, name of the artists, JPG name, etc.) of the underlying digital asset to identify that asset.
5. You cannot use NFTs to fractionalize an asset, since all tokens representing fractions of the asset will have the same value. Therefore, the tokens will be fungible against each other.
6. If you force-fractionalize an income-generating asset into NFTs (just because NFTs are the rage these days), you are likely to be covered by the Securities Acts, which means those NFTs will be securities and you will have to follow the SEC regulations.
7. If you are creating NFTs, which are based on other digital tokens that may generate earnings in the future, you may be treading into the regulated world of derivatives.
8. The Howey Test will absolutely apply to NFTs.
9. NFTs (e.g., CryptoKitties) follow ERC-721 standard and most of the newly emerging digital securities and stable coins follow ERC-20 standard for fungible blockchain tokens.
10. NFTs are here to stay. NFTs allow artists to create and sell unique digital assets that cannot be duplicated. Ownership rights have value even when everyone has a copy. This is why fakes of masterpieces never get anywhere close of the value of the original.

While NFT’s can be a transformative tool to connect with fans and offer unique creations and experiences, they can also create legal risk and possible liability if it gets deemed a security. That’s why the Akemona platform issues NFT’s as investor perks as part of a security offering which is conducted within the regulatory-compliant framework on blockchain. Akemona allows creators, artist, musicians, influencers, athletes, teams and leagues to sell digital securities to their fans for raising funds up to $5 million per year under Regulation Crowdfunding. For more information on digital securities and NFT’s visit Akemona’s website.