As nations across the globe are rapidly proceeding towards regulating digital assets, the German regulator has revealed its plans for non-fungible tokens (NFTs). The Federal Financial Supervisory Authority of Germany (BaFin) said that it is not ready to classify NFTs as securities. Instead, the agency suggests classifying the NFTs on a case-by-case basis.
The NFTs are cryptographic assets based on blockchain technology but cannot be exchanged or traded equivalently like other cryptographic assets like Bitcoin or Ethereum.
On Wednesday, the BaFin published a journal explaining the NFTs’ legal classification. Currently, the regulators are not sure if the NFTs possess the qualities to be considered securities. However, the regulator didn’t completely disregard the possibility of NFTs being classified as securities. It said that in the coming times, BaFin may consider NFTs as securities if, for example, 1,000 NFTs embody the same repayment and interest claims.
It is important to note that according to another reservation, if an NFT contains documentation of exploitation rights or ownership, such as a promise of distribution, it could be considered an investment.
While the regulator recommends a case-by-case approach to classifying NFTs as a “crypto asset,” it also acknowledges the chance that NFTs will represent a “crypto asset” is even smaller than the investment classification due to the lack of immediate exchangeability. Additionally, the lack of standardization spares NFTs of “e-money” status.
Considering the difficulties with classification, BaFin doesn’t expect NFTs to comply with the licensing requirements of the Payment Services Supervision Act. The German Payment Services Supervision Act (ZAG) is the law on the supervision of payment services. The ZAG coordinates the supervision of payment services and e-money businesses at the hand of the BaFin.
The regulator specifically mentioned that NFTs don’t have to comply with the licensing requirements of the ZAGg except for fungibles, which fall under the financial instrument category. Additionally, NFTs are also free of BaFin’s anti-money laundering supervision but the ones separately considered “crypto assets” would need to comply with AML supervision.
However, this is not the first time that a regulator has expressed uncertainty regarding NFT regulation. In October, Hester Pierce, commissioner of the SEC said that creative NFT collections with profile pictures and others of a similar nature have generated billions of dollars in aftermarket sales, but they assert to be works of art that provide owners with societal benefits and social utility rather than being investment items. According to Peirce, the “facts and circumstances” of each case would have to be considered in determining the securities status of those collections.
NFTs are appreciated by the masses for a variety of reasons including aesthetics or fan tokens etc. According to the metaverse platform Meta Juice, almost three out of four of the NFT collectors on its platform purchase NFTs for status, uniqueness, and aesthetics. Only 13% percent of survey participants said they buy NFTs to resell them in the future. Todayq News reported research from DappRadar on blockchain and decentralized application (DApp) growth in 2022, NFT sales hit 101 million last year, an increase of 67.57% from the year before.