NFTs as securities under U.S. law

When non-fungible tokens (NFTs) burst into mainstream attention in 2021—through multimillion-dollar digital art sales, celebrity endorsements, and profile picture (PFP) collections like Bored Ape Yacht Club—they were hailed as a cultural revolution. Unlike fungible cryptocurrencies, NFTs allowed verifiable ownership of unique digital assets, from art to music to in-game items.

But the U.S. regulatory lens is sharpening. The Securities and Exchange Commission (SEC) and other regulators increasingly question whether some NFTs, particularly those tied to profit expectations, are actually unregistered securities. If so, issuers, marketplaces, and even buyers could face significant legal implications.

This article explores how NFTs intersect with U.S. securities law, the SEC’s enforcement stance, case studies of NFT-related probes, and the broader consequences for the future of digital ownership.

1. What Makes a Security in U.S. Law?

The U.S. doesn’t have a single, universal definition of “security.” Instead, courts rely on the Howey Test (from SEC v. W.J. Howey Co., 1946) to determine if something qualifies as an “investment contract.”

Under the Howey Test, an asset is a security if it involves:

An investment of money,
In a common enterprise,
With an expectation of profit,
Derived from the efforts of others.

This test underpins SEC enforcement against crypto projects—and increasingly applies to NFTs.

2. The SEC’s View on NFTs

The SEC has not issued comprehensive NFT guidance but has signaled through enforcement actions and comments that certain NFTs may qualify as securities.

Key concerns:

Fractional NFTs: Splitting ownership of high-value NFTs into tradable shares may resemble securities.
NFTs with Rewards or Royalties: If marketed with promises of income streams, they may trigger securities classification.
Speculative PFP Projects: If buyers expect rising floor prices based on team promotion, that expectation of profit may qualify.

The SEC’s position is not about the technology, but the economic reality of the transaction.

3. Case Studies of Enforcement and Scrutiny

a) Impact Theory (2023)

The SEC charged Los Angeles-based media company Impact Theory for selling NFTs that it said were unregistered securities.
NFTs were marketed with promises that they would deliver value as the company grew, resembling equity-like investments.
Impact Theory settled, paying over $6 million in penalties.

b) Stoner Cats (2023)

The SEC charged creators of the Stoner Cats NFT series (backed by actress Mila Kunis) for unregistered securities offerings.
The NFTs were promoted as investments tied to the success of the animated show.
Settled with a $1 million penalty.

c) Other Ongoing Probes

Reports indicate the SEC has probed multiple NFT issuers and marketplaces over whether their sales or resale structures create securities.
Fractionalized NFTs and DeFi-NFT hybrids are a particular focus.

These cases show the SEC is actively testing boundaries.

4. Categories of NFTs and Securities Risk

a) Digital Art NFTs

If sold purely as collectibles or art, they resemble traditional art markets.
Lower securities risk unless tied to profit promises.

b) PFP and Membership NFTs

Projects like BAYC offer community perks but are often resold as speculative investments.
The resale hype, combined with issuer promotion, can trigger Howey concerns.

c) Fractionalized NFTs

Turning a single NFT into fungible “shares” explicitly resembles securities.
SEC likely to treat these as regulated offerings.

d) Utility NFTs

NFTs granting access to events, games, or services are less risky.
But marketing them as appreciating assets blurs the line.

e) Royalty-Backed NFTs

Promising buyers revenue shares from music or film projects clearly resembles investment contracts.

The risk depends on marketing, structure, and buyer expectations.

5. Marketplaces and Platform Liability

The SEC’s scrutiny doesn’t stop at issuers:

Marketplaces (OpenSea, Blur, etc.): If NFTs sold on their platforms are securities, marketplaces may need to register as broker-dealers or exchanges.
Fractionalization Platforms: Services enabling NFT “shares” could face securities registration requirements.
Celebrities and Influencers: Promoters of NFT projects face liability if they promote securities without disclosures.

Liability extends across the NFT ecosystem, not just to artists.

6. Arguments For and Against Treating NFTs as Securities

Pro-Securities Classification

Protects investors from scams and rug pulls.
Ensures disclosures and transparency from issuers.
Aligns NFTs with traditional financial instruments when used for profit schemes.

Against Classification

Overreach may stifle innovation and creativity.
Many NFTs function as digital art or collectibles, not investments.
Applying securities law to every NFT sale creates compliance burdens disproportionate to risk.

This tension defines the regulatory debate.

7. Implications for NFT Creators

If NFTs are deemed securities, creators must:

Register offerings with the SEC (costly and complex).
Provide investor disclosures (prospectuses, filings).
Avoid speculative marketing claims.
Potentially exclude retail buyers to comply with accredited investor rules.

This could significantly reduce accessibility and reshape NFT business models.

8. Implications for Collectors and Traders

Compliance Risk: Buying or reselling unregistered securities could create liability.
Liquidity Impact: Marketplaces may delist risky NFTs.
Taxation Complexity: Securities classification may trigger additional reporting and tax rules.

Collectors must navigate not just market volatility but legal uncertainty.

9. Broader Industry Impact

The NFT-securities debate has ripple effects:

DeFi-NFT Hybrids: Collateralized lending with NFTs may fall under securities/commodities oversight.
Tokenization of Real Assets: Real estate or equity-backed NFTs almost certainly fall within securities laws.
Web3 Gaming: In-game NFT items tied to play-to-earn models may draw regulatory scrutiny.

The line between collectibles and securities is blurring.

10. International Context

While the U.S. focuses on securities law, other jurisdictions are taking different paths:

European Union (MiCA): Focuses on stablecoins and fungible tokens; NFTs largely excluded but may face later regulation.
UK: NFTs treated more like collectibles unless tied to financial rights.
Asia: Mixed approaches—Japan regulates crypto tokens heavily, but NFT-specific rules are less developed.

The U.S. remains the strictest jurisdiction, but global divergence creates regulatory arbitrage opportunities.

11. Future Scenarios

Several outcomes are possible:

Case-by-Case Enforcement: SEC continues targeting egregious projects without blanket rules.
Legislative Clarification: Congress passes new laws distinguishing collectible NFTs from investment NFTs.
Marketplace Self-Regulation: Platforms adopt standards to screen out security-like NFTs.
Integration with Securities Regimes: Fractionalized or revenue NFTs treated like tokenized securities, requiring compliance infrastructure.

The trajectory will shape whether NFTs evolve as cultural tools, financial products, or both.

12. Timeline of Key Events

2021: NFT boom draws SEC attention.
2022: Reports emerge of SEC probing NFT issuers.
2023 (Aug): SEC charges Impact Theory for NFT securities offering.
2023 (Sept): SEC charges Stoner Cats NFT project.
2024–2025: Ongoing probes into marketplaces and fractional NFT platforms.

Conclusion

NFTs promised to revolutionize ownership, creativity, and digital culture. But their explosive growth also attracted speculation, profit-seeking, and in some cases, schemes that closely resemble traditional securities offerings.

Under U.S. law, the key question is not whether an asset is digital, but whether it fits the Howey Test. For NFTs marketed as investments or profit opportunities, the SEC’s answer is increasingly “yes.”

The challenge now is to strike a balance: protect investors without suffocating creativity. If NFTs become indistinguishable from securities, the art-driven ethos of Web3 could give way to heavy regulation and institutional gatekeeping. But if regulators carve out nuanced frameworks, NFTs could thrive both as cultural artifacts and as compliant financial instruments.

For now, the industry sits in limbo—caught between art and finance, code and law.

ALSO READ: Top 10 Crypto Careers in Demand in 2025