Both the head of the Commodity Futures Trading Commission (CFTC) and leader of the SEC agree that the crypto markets need regulating, and specific rules may help clarify which agency has authority to regulate various cryptocurrency activities. The client alert below discusses both CFTC Chairman Rostin Behnam’s comments and SEC
So you bought an NFT. You now own what is effectively an immutable electronic deed meant to record ownership of an asset, often a digital artwork. You probably paid for the NFT upfront—and if the artist is popular, you may have paid a substantial sum. This is one factor that has made the NFT market so attractive for artists working in digital mediums, many of whom struggle to effectively monetize their work. Like traditional art gallery sales, NFT sales allow creators to reap substantial profits from one-time instantaneous transactions, offering a lucrative alternative to gradually generating revenue through licensing, merchandizing, or streaming (though many NFTs also allow an artist to reap a percentage of future downstream sales, too).
But while NFTs have created a new outlet for many artists, the technology has also been a boon to digital content thieves. Pirates can mint knockoff NFTs with nothing more than a digital file and some cryptocurrency, then sell those knockoffs to unsuspecting collectors. Forged art is as old as art itself, but because they feature exact copies of their stolen works, knockoff NFTs are often indistinguishable from their genuine counterparts. Moreover, unlike other online infringers (think purveyors of illegal streams or unauthorized t-shirts), an NFT pirate only needs one unwitting buyer to take the “one-of-a-kind” virtual bait before disappearing with the oft-substantial payment into anonymity, meaning the entire scam can happen in hours or even minutes. Amidst the resulting piracy boom, it falls to creators to protect both their fans and their IP by scanning platforms for infringing NFT sale listings and issue takedown requests. But even when they succeed in getting a sale listing removed, the knockoff NFT itself remains immutably on its blockchain and the infringing content usually remains elsewhere on the web.
Undoubtedly, digital creators will fight to protect their work. The question is, are current copyright protection procedures—specifically, those under the DMCA—up to the task?
On December 17, 2021, the Financial Stability Oversight Council (“FSOC”) – a collaborative body formed under the Dodd-Frank Act composed of state and federal regulators and tasked with identifying risks and responding to emerging threats to financial stability – released its 2021 Annual Report (the “Report”). In the Report, the FSOC offered wide-ranging insight into what it perceived to be various vulnerabilities in the financial system and related regulatory concerns on topics ranging from climate-related financial risks, the real estate market, certain financial structures, data challenges, and cybersecurity. Notably, the FSOC additionally dedicated a section of the Report on the specific risks digital assets pose to the financial system, specifically, those involving stablecoins.
Stablecoins are digital assets designed to maintain a stable value by pegging the digital asset to a national currency or another reference asset (i.e., a commodity like gold, silver, or oil). Using reference assets to stabilize price, stablecoins seek to become the alternative payment mechanism to bitcoin and other cryptocurrencies, and have also been used to facilitate trading and lending of other digital assets. However, the FSOC, taking a systemic, wide view, is not without concern.