SEC Commissioner Supports Using NFTs to Raise Funds for Crypto Startups

SEC Crypto Task Force lead, Hester Peirce, has said that NFT-based fundraising projects like Stoner Cats and Flyfish Club should be exempt from securities regulations.

Peirce said that regulatory clarity could soon follow the agency’s recent decision to declassify proof-of-work crypto mining within security laws.

“We could do it on NFTs as well,” she stated. “If we could provide some kind of framework or some kind of markers for [NFT issuers] to look to, I think it could be pretty helpful.”

"Providing a framework or guidelines for NFT issuers to reference could be helpful," she added. "We can make an announcement of an exemptive nature regarding NFTs."

The SEC under Gary Gensler heavily scrutinized NFTs as potential securities. Peirce indicated that future SEC guidance might exclude art NFTs from securities classification.

Stoner Cats, an animated series produced by actress Mila Kunis, raised $8 million through NFT sales, offering buyers exclusive access to the show. These NFTs were resellable, with a 2.5% royalty on secondary sales benefiting the creators. Similarly, Flyfish Club raised $14 million via NFT sales to fund a private restaurant, granting membership access while also incorporating a resale royalty structure.

However, the NFT market is no longer the once-thriving environment it used to be. As reported by Decrypt, "The NFT market suffered a dismal 2024, with trading volumes and sales counts dropping to their weakest levels since 2020. Annual trading volumes fell by 19%, while sales counts dipped by 18% compared to 2023, according to a report by blockchain analytics platform."

Peirce also clarified that an NFT’s exemption from securities laws would depend on its structure. “You could have an NFT that’s a tokenized security, and it could be structured as an NFT,” she said. “Obviously that’s not going to be carved out.”

Last week, Canary Capital has submitted a filing to the SEC for the creation of an exchange-traded fund (ETF) that will track PENGU, the governance token for the Pudgy Penguin ecosystem.

The ETF would also include Pudgy Penguin NFTs and other digital assets like Solana and Ethereum to facilitate transactions, marking the first ETF to incorporate NFTs alongside cryptocurrencies.