SEOUL, South Korea — Non-fungible tokens (NFTs) that are part of a collection will have to apply new European Union crypto rules intended to warn investors of risks, an official told attendees at Korea Blockchain Week on Tuesday.
The remarks come in spite of previous claims that the innovative ownership tokens would be excluded from the bloc’s newly agreed Markets in Crypto Assets (MiCA) law. The EU struck a political deal on MiCA at the end of June – and how to treat NFTs, which offer a tradable, digital way to prove ownership of assets such as artworks, was a major sticking point in talks until the last moment.
Though the deal settled the major political elements of the law, no text is yet available. In theory, according to official declarations, the final draft of the law exempts NFTs unless they constitute some other kind of crypto asset. In practice, remarks from the European Commission’s Peter Kerstens suggest that a carve-out might provide scant relief.
EU legislators “take a very narrow view of what is an NFT,” said Kerstens – who is adviser for technological innovation at the commission’s financial-services arm – implying few assets will benefit from the exemption.
“If a token is issued as a collection or as a series – even though the issuer may call it an NFT and even though each individual token in that series may be unique – it's not considered to be an NFT, so the requirements will apply,” Kerstens said.
That would mean issuers of NFT collections have to publish a white paper setting out details of the protocol used by the NFTs, and would be forbidden from making outlandish promises about future value that could mislead people into buying, he added.
EU national governments felt that including NFTs in MiCA would be an unjustified extension of a bill originally designed to protect investors in stablecoins and initial coin offerings. But lawmakers from the European Parliament, who also had to sign off on the legislative deal, were more hawkish, arguing the NFT market is prone to securities-style price manipulation such as wash trading.
Kerstens himself had previously said it would be “silly” to require a white paper – a lengthy regulatory document broadly equivalent to the prospectus drafted for stocks – for every NFT. The idea that NFT platforms like OpenSea might have to seek regulatory authorization had provoked worries about crushing innovation in the nascent industry.
The European Commission, broadly the EU’s executive arm, proposed the first draft of MiCA back in 2020. Since then it has brokered talks in the EU’s Council and Parliament as they amended the law.
Korean regulators are still hesitating over how to regulate the crypto-asset industry. The approach taken by the EU – and by the U.S., whose Congress currently has a number of crypto bills pending – may prove crucial in setting their direction.
Korean government officials told local media in June that work on the country’s upcoming digital asset framework, the Digital Asset Basic Act, would begin in earnest in October, after U.S. regulators publish the reports ordered by President Joe Biden’s executive order on crypto.