OpenSea has called on the United States Securities and Exchange Commission (SEC) to officially exclude NFT marketplaces from being classified as exchanges under federal securities laws.
In a letter sent to SEC Commissioner Hester Peirce, OpenSea’s legal department, led by the general counsel, Adele Faure, and Laura Brookover, the deputy general counsel of OpenSea, argued that NFT platforms operate differently from traditional exchanges.
Their arguments were that NFT marketplaces do not transact, mediate, or provide platforms in which multiple buyers and sellers trade P2P and identical products, which are key exchange features.
The legal team also shared that numerous enforcement actions made by the SEC made the crypto market rather uncertain. OpenSea cited the need for clarity to safeguard American tech firms and encourage the growth of innovation in the NFT space. They also asked the Crypto Task Force at the SEC to provide informal advice on the legal status of NFT marketplaces, as per the agency’s recent clarifications on memecoins and stablecoins.
“In preparing this guidance, the Crypto Task Force should specifically address the application of exchange regulations to marketplaces for non-fungible assets, similar to the recent staff statements on memecoins and stablecoins.”
~ OpenSea.
OpenSea challenges Broker registration requirements
In addition to the exchange classification issue, OpenSea has rejected any SEC classification that considers NFT marketplaces as brokers. According to Faure and Brookover, OpenSea and similar NFT marketplaces do not qualify for the broker definition because they do not provide advice, trade, and hold their customers’ funds.
They urged the SEC to clarify remaining uncertainty in the industry by providing guidance that states that NFT marketplaces cannot be classified as brokers under federal securities laws. OpenSea also suggested to the Commission that any NFT marketplace should be excluded from any future broker’s regulation.
This stance comes at a time when the SEC has articulated positions on other crypto instruments. In the past few months, the SEC has clarified that some stablecoins and memecoins are not securities.
The stablecoins that meet certain characteristics are exempt from transaction reporting rules, while the memecoins are classified as collectibles and not securities. The SEC has also dismissed some enforcement actions on various crypto companies.
SEC ends probe into OpenSea
OpenSea’s request for such clarity came after a positive occurrence in the NFT market. The SEC recently concluded an investigation into OpenSea without either taking the platform to court or categorizing NFTs as securities. This new development is a complete departure from the past, where the agency focused more on enforcement.
Devin Finzer, OpenSea CEO, also applauded the decision, calling it a win for not just OpenSea but Web3 and NFT users as a whole. Finzer claimed that defining NFTs as securities would have been detrimental and placed many limitations on their development.
“Trying to classify NFTs as securities would have been a step backward. Every creator should be able to build freely without unnecessary barriers.”
~ Devin Finzer.
NFT trading has lately experienced a drastic decline in its activity. In 2024, NFT trading volumes and sales count were among the lowest recorded since 2020. According to data, the annual trading volume has reduced by about 19%, and sales are 18% lower than what was recorded a year ago.
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