Morning Minute | SEC Tells OpenSea NFTs Are Securities

TylerD's Market Summary

🚨 OpenSea Under Attack

Gary Gensler's days at the SEC might be numbered.

But he isn't going down without a fight.

And now - he's going after NFTs.

What Happened?

Yesterday, OpenSea announced it has received a Wells Notice from the SEC and is expecting a lawsuit over their belief that NFTs are securities (and OpenSea enabled the selling of said securities).

This is not the first time NFTs have come under fire, with the SEC seeing prior success coming after individual founders like Tom Bilyeu and his Impact Theory collection and Mila Kunis's Stoner Cats.

But this is the first time the SEC has come after a marketplace like OpenSea with more broad, sweeping charges.

And the SEC has not provided any additional detail on which specific NFT projects or types of NFTs might fall under scrutiny.

OpenSea is pledging $5M to cover legal fees for any artists and/or developers which may also receive Wells Notices to "ensure creators can continue innovating without fear."

So they are fighting the good fight.

What Are They Saying?

This is unsurprisingly a very hot topic on Crypto Twitter and beyond.

Devin Finzer, CEO of OpenSea commented in a long announcement post:

"Cryptocurrencies have long been in the crosshairs of the SEC...

But this is a move into uncharted territory. By targeting NFTs, the SEC would stifle innovation on an even broader scale: hundreds of thousands of online artists and creatives are at risk, and many do not have the resources to defend themselves."

Congressmen are weighing in as well.

Pro-crypto Democrat Wiley Nickel called the SEC's approach "regulation by enforcement" and "a blatant abuse of power that erodes trust and transparency in our regulatory system."

He went further to say actions like this could "derail the progress driving digital innovation in the United States."

A spokesman for the pro-crypto lobbying group the Blockchain Association, Jake Chrevinsky, commented:

"The idea that a financial markets regulator established in the 1930s would have jurisdiction over digital art in the 2020s defies not only common sense, but also the SEC's statutory authority."

It's hard to argue with any of those statements - but this case does have more nuance.

Why It Matters

For starters, it's a shame that SEC is going after OpenSea in this way.

Are all NFTs securities? Definitely not.

Is digital art a security? No, cmon.

Is a 10k PFP collection with a team driving it that raises $30M+ to execute a roadmap, and perhaps goes as far as offering dividends to holders, a security? Probably yes.

In reality, several 2021-era NFTs did likely operate as securities (based on the Howey Test).

The question is - should OpenSea be held accountable for that, or the individual project founders?

I lean the latter.

OpenSea has done what seems like a good job at complying with the SEC and removing collections deemed securities (i.e. Stoner Cats, Impact Theory, etc.).

And complying with Sanctions regulations by removing art from Iranian artists, for example. But the reality it, OpenSea was the wild west in 2020, early 2021, where anything and everything was available for sale.

Iranian artists were featured on OpenSea's home page back in 2021 (it's illegal for US citizens to make direct purchases from anyone in Iran due to Sanctions rules).

But they fixed it.

Which is why this case against them is so surprising, given their cooperation.

The optimist in me thinks this could still have a positive outcome, as we may have more clear regulations and a framework for moving forward for NFT marketplaces once this case is resolved.

Thankfully, OpenSea seems to be one of the best-positioned companies in Web3 to fight this fight, and go get this clarity for the broader space.

🚚 What else is happening in NFTs?

Here is the list of other notable headlines from the day in NFTs:

• ETH led NFT trading volume with $4.7M on the day; Solana was next with $3.4M, and then BTC with $1.7M
• ETH NFT leaders were mixed on the day; Pudgy -1% at 10.43 ETH, BAYC +1% at 13.15 ETH, Azuki +1% at 4.96, Milady -2% at 3.6
• Mid-tier Punks saw several nice sales on Wednesday in the 38-40 ETH range, while Gondi reported $1.125M in loan volume on Punks on the day (floor at 29.5)
• Party Bears (+67%) and The Undead (+60%) were other notable top movers
• BTC NFT leaders were mostly green; NodeMonkes even at 0.134 BTC, Puppets -1% at 0.093 BTC, Quantum Cats +3% at 0.279; Pizza Ninjas up another 10% to 0.159 BTC
• The Runes leaders were mostly red; DOG -2% at $285M mc, RSIC -5% at $69M mc, PUPS -7% to $46M
• Solana NFTs were slightly red; Mad Lads even at 55 SOL, SMB Gen 2 -1% at 27, DeGods -3% at 30
• Doodles dropped "Certified Viral No. 2." with their new short "you blow me away," available for collecting and trading on Zora
• The NFLPA has sued DraftKings over its NFT fantasy game Reignmakers, claiming that DK owes them $65M
• Sam Spratt celebrated the 1-year anniversary of The Monument Game by teasing the next Chapter of Luci saying he looks forward to sharing it "as soon as it's ready"

💰 Token, Airdrop & Protocol Tracker

Here's a rundown of major token or airdrop news from the day:

🌎 Around Crypto and Web3

A few other Crypto and Web3 headlines that caught my eye:

• Crypto majors chopped on the day; BTC even at $59,700; ETH +1% at $2,540, SOL -1% at $145
• Memecoin majors also chopped with DOGE even, PEPE -1%, WIF -1%, BONK +1%, MOG +2%
• The TON blockchain went down again on Wednesday, marking the 2nd time in as many days
• Soneium introduced its Minato testnet and Spark Incubation details as Sony's new ETH L2 went live, with investments up to $100k per team and a laundry list of major partners
• Own the Doge announced a licensing deal with Revolut, putting the iconic Doge on new card designs
• In raise news, Lemniscap raised $70M in funding for early stage crypto project investing, and Solayer Labs raised $12M to expand Solana restaking 
• Cobie's Echo announced $10M invested into crypto startups, with their vision to provide open access to private crypto investing

🚀 Memecoin Movers 

• $PHIL (+77,000%, $72M market cap, ETH)
• $MUNCAT (+82%, $35M market cap, TRON)
• $NEIRO (+62%, $13M market cap, SOL)
• $APES (+54%, $29M market cap, SOL)
• $PORK (+32%, $45M market cap, ETH)

📈 NFT Floor Price Increase (ETH)

• Cryptomnesia (310%, 0.98 ETH Floor)
• Party Bears (68%, 0.12 ETH)
• The Undead (65%, 0.74 ETH)
• Meebits (21%, 0.48 ETH)
• Treeverse (21%, 0.27 ETH)

🗓 Upcoming Mints and Events

Today is a busier day of mints as the velocity of new drops picks up.

The highlight is likely Danny Cole's Creature Cubes, the Creature World founder's new venture into NFTs with an ERC-404 collection dropping on Base.

See the full list and dive in for more details with Swizzy's daily mint monitor. 

• Pixel Packets (10:00 a.m. ET)
• Monkey Maxis (11:00 a.m. ET)
• FSIC (11:00 a.m. ET)
• Danny Cole - Creature Cubes (12:00 p.m. ET)
• Tiny Dinopunks (12:00 p.m. ET)

Enjoy this write-up and/or want to sponsor the Morning Minute? Follow along with me on Twitter @tyler_did_it or reach out via email to tyler.warner@luckytrader.com.