- CyberKongz faces SEC legal action over NFT token classification.
- SEC challenges CyberKongz’s token pairing with blockchain game.
- CyberKongz fights for clearer NFT and Web3 regulations.
The SEC seems busy these days as Gary Gensler’s term as chair is nearing its end. The agency just served another Wells Notice, this time to NFT collection CyberKongz. This signals possible enforcement action. Earlier today, the SEC issued a similar notice to crypto investment firm Unicoin.
This Wells Notice follows charges against CyberKongz. It shows the SEC believes CyberKongz may have violated securities laws. CyberKongz, on its part, has vowed to fight the SEC and push for clearer rules for NFTs.
The SEC is concerned about CyberKongz’s ERC-20 token and its blockchain game. The SEC says this setup could make the token a security, requiring registration like other securities under US law.
This is similar to the SEC’s stance in other cases, like Ripple, where it said tokens were securities. CyberKongz rejects this, saying the SEC doesn’t understand blockchain tech.
Read also : SEC Targets Unicoin in Crackdown on Crypto as Gensler’s Resignation Nears
According to CyberKongz, the project has been under the SEC’s inspection for over two years. During this period, the team has faced a silent struggle, with the SEC allegedly misinterpreting aspects of its operations.
CyberKongz to Challenge SEC in Court
Despite having a small team and lacking capital raises or a large treasury, CyberKongz intends to challenge the SEC’s position in court. The team is arguing for clearer regulatory guidelines to avoid creating a damaging precedent for the entire Web3 gaming industry.
CyberKongz also questioned the SEC’s understanding of smart contracts. The SEC objects to the sale of Genesis Kongz NFTs in April 2021. CyberKongz says this wasn’t a sale, but a contract migration.
Read also : OpenSea Faces SEC Scrutiny Over NFT Classification
The project questions how effective regulation can be if the SEC cannot recognize between a primary sale and a contract migration, calling it a fundamental misunderstanding of the technology.
However, the SEC uses the Howey Test to decide if assets are securities. This has caused controversy with NFTs and many say this approach doesn’t give clear guidance.
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