Hester Peirce, a commissioner at the U.S. Securities and Exchange Commission (SEC), recently clarified that NFT royalties alone do not automatically make non-fungible tokens (NFTs) securities. The statement offers much-needed insight amid ongoing debates about how digital assets — especially NFTs — should be regulated in the United States.
“Paying royalties to creators doesn’t turn NFTs into securities,” Peirce emphasized during a crypto industry panel, signaling a more nuanced approach to the SEC’s interpretation of NFT-related laws.
Royalties Seen as Creative Incentives, Not Investment Contracts
NFT royalties refer to the automated percentage payments sent to original creators when an NFT is resold. These payments are a core feature of many NFT platforms and serve to incentivize artists and content creators.
Peirce made it clear that the presence of a royalty structure alone doesn’t meet the legal definition of a security under the Howey Test, which the SEC commonly uses to determine whether a financial instrument qualifies as an investment contract.
“The royalty function is about rewarding creativity — not promising profits to buyers based on someone else’s work,” she said.
Important Distinction for the NFT Market
Peirce’s comments come at a time when the NFT market faces increasing scrutiny from regulators, with concerns over potential fraud, speculation, and unregistered securities offerings.
Her stance brings relief to many in the Web3 space, who feared that aggressive enforcement could stifle innovation in digital art and entertainment.
“This distinction is critical for ensuring that artists and developers can keep building without unnecessary regulatory burdens,” said an NFT project founder.
Context: SEC’s Mixed Messaging on Digital Assets
The SEC has taken a tough stance on certain crypto tokens, especially those that resemble traditional investment contracts. However, its position on NFTs has remained ambiguous, leading to confusion among creators, platforms, and investors.
Peirce, often referred to as the SEC’s most crypto-friendly voice, has repeatedly called for more transparent guidelines. Her latest statement adds clarity, even as other commissioners push for tighter controls in the crypto space.
Conclusion
Peirce’s assertion that NFT royalties do not make tokens securities is a positive signal for the future of Web3 art, music, and collectibles. It reinforces the idea that innovation and regulation can coexist, provided there is a clear understanding of the technologies involved.
As the legal landscape evolves, statements like these offer valuable guidance to NFT creators, marketplaces, and investors alike.