The Digital Chamber (TDC) applauds Congressman Timmons for his leadership in introducing the groundbreaking New Frontiers in Technology (NFT) Act, the first bill in U.S. Congress to directly address the legal and regulatory treatment of non-fungible tokens (NFTs). We also greatly appreciate that Congressmen Torres has co-sponsored this legislation making it bipartisan.
Considering recent securities lawsuits and Wells Notices targeting actors in the NFT space, this critical legislation ensures that certain covered NFTs, and their evolving use cases, are correctly defined in law, and are clarified to not be securities.
TDC Efforts
While we anticipate a less hostile SEC in the next administration, it is imperative that Congress act now. Passing NFT and other digital asset legislation is essential to establish permanent laws and provide much-needed clarity for the industry. That’s why TDC has been advocating for appropriate NFT legislation for years. We are proud to see the NFT Act include language developed in the CFTC Global Markets Advisory Committee’s working group on NFTs, led by TDC’s Founder and CEO Perianne Boring. We also synthesized these policy recommendations in our Pixels to Policy Report released in July 2023.
So what exactly does this bill do to protect NFTs? Below is a breakdown of its key provisions:
- Defines Non-Fungible Tokens:
- The bill defines NFTs as any asset that has limited production or uniqueness so that it can be assessed or identified by its unique digital identifier on a on a public distributed ledger; is the digital equivalent of a tangible or intangible good; has inherent function beyond the fact of being on chain; and can be exclusively possessed and transferred from person to person, without reliance on intermediaries.
- The definition of NFTs in this bill explicitly excludes a comprehensive list of traditional securities, commodities futures, derivatives, and other investment contracts. The list of exclusions was expanded significantly from the discussion draft. TDC and our members greatly appreciate this clarity.
- Defines and Creates Protections for “Covered” Non-Fungible Tokens
- “Covered non-fungible tokens,” per the text, are not investment contracts, and the sale of a covered NFT is not a transaction in a security. This means covered NFTs—that is, most NFTs—are not securities, and the SEC has no claim to regulate them.
- Covered NFTs are described as those which are primarily for personal, family, or household consumption, listing specific categories. Those include NFTs created as:
- Works of art, musical compositions, literary works, or other intellectual property
- Collectibles, merchandise, virtual land, or video game assets
- Digital identifiers or other certificates or credentials (a new category in this version of the text that TDC applauds the inclusion of)
- Affinities, rewards, or loyalty points
- Rights, licenses, or tickets
- Exclusions apply, however. Even if they fall into one of the categories above, NFTs are excluded from protective coverage under this bill if they are marketed by an issuer or promoter primarily as an investment opportunity, or with promises of future actions designed explicitly for the purpose of increasing the NFT’s value.
- NFT and Digital Asset Study
- The final provision directs the Comptroller General of the Government Accountability Office—and not, importantly, a financial regulatory body like the SEC—to carry out a study of non-fungible tokens and other digital assets, including payment stablecoins, within one year. The report would cover topics, spanning from token minting and custody, to interoperability, to market risks and opportunities, and beyond.
Your Support is Crucial
Help the digital asset industry flourish responsibly without the hindrance of misapplied securities regulation. Contact your Representatives in Congress and voice your support for this important bill. By supporting this Act, you can ensure continued technological innovation, greater consumer protection, and a true home within the United States for blockchain technology.