On Monday, Hong Kong’s Securities and Futures Commission (SFC) released a statement warning investors concerning the perils of nonfungible tokens, or NFTs, that have soared in recognition recently. The regulatory body authored:
“Just like other virtual assets, NFTs are uncovered to increased risks, including illiquid secondary markets, volatility, opaque prices, hacking, and fraud. Investors ought to be conscious of those risks, and when they can’t completely understand them and bear the possibility losses, they ought to not purchase NFTs.”
However, it seems the SFC’s specific concern is based on the securitization of NFTs. “Nearly all NFTs observed through the SFC usually are meant to represent a distinctive copy of the underlying asset like a digital image, artwork, music, or video,” that do not require regulation through the SFC.
But assets that push the boundary between collectibles and financial assets, for example fractionalized or fungible NFTs structured as securities or collective investment schemes (CIS) in NFTs, do come under the SFC’s mandate. Such activities soliciting Hong Kong residents require issuer to acquire a license in the SFC unless of course an exemption applies.
CIS has lately acquired traction because they present a plausible solution for individual investors to acquire fractional possession real-existence collectibles that might be otherwise too cost-prohibitive for just about any single party. Yet, questions persist whether or otherwise such investment structures constitute securitization.
One recent effort launched through the Royal Museum of proper Arts Antwerp (KMSKA) to tokenize millions of-euro classic painting around the blockchain was conducted via debt securitization. The venture met regulatory needs via the assistance of blockchain entities Rubey and Tokeny.