When NFT marketplace OpenSea said last month it was bracing for strict regulatory action, the revelation shocked Magic Eden CEO Jack Lu.
“It all happened very suddenly,” he said in an interview with Declutter (video below), adding that the San Francisco-based company does not have a so-called Wells notices of the US Securities and Exchange Commission (SEC).
OpenSea said it has received a letter from the SEC to claim that NFTs traded on its platform are securities. NFT co-founder and CEO Devin Finzer, meanwhile, said the company is ready to “stand up and fight.”
While the regulator has taken enforcement action against NFT projects before, OpenSea’s disclosure represented something new. It indicated that the SEC has begun investigating entities that offer trading platforms for NFTs, not just those that initially offer them.
Before Magic Eden emerged as the leading NFT marketplace in terms of volume, OpenSea was the place of choice for digital art and profile photo collections (PFP). Projects such as the Bored Ape Yacht Club and Art Blocks, which also trade on Magic Eden, have catapulted OpenSea to the forefront of the vibrant market in 2021 and 2022.
Magic Eden is not currently in the SEC’s crosshairs, but Lu acknowledged that a lawsuit against OpenSea could have broad implications for an area of cryptocurrency that has been left relatively untouched by regulators compared to exchanges or cryptocurrency issuers.
“The lack of regulatory clarity actually comes from the territory,” Lu said. “To the extent that this incident is going to create more clarity in the room, I welcome that.”
From unique digital works of art to human-readable blockchain addresses, NFTs can represent ownership of a multitude of things. Some lawyers do argued that the SEC would face challenges in exercising authority over the NFT space, as the regulator does not have a pronounced role in overseeing the markets for physical fine art or collectibles.
Regardless of what might happen to OpenSea, Lu said Magic Eden’s business was guided by a desire to do right by regulators. He said: “The general principle for us is that we want to be good players and really compliant in the ecosystem.”
When the SEC filed high-profile lawsuits against Coinbase and Binance Last year, the regulator provided a list of cryptocurrencies traded on the exchanges that it believes are securities. Soon after, companies liked it eToro And Robinhood dropping support for them.
When asked if Magic Eden would be willing to delist NFTs that the SEC could label as securities, Lu demurred, suggesting the company first review any potential charges.
“A lot of these things rely on nuances and the actual circumstances of the case,” Lu said, adding that “it may not be helpful to apply hypothetical things to the future.”
Edited by Andrew Hayward
