Originally published on: December 16, 2024
The gaming token landscape may face a significant hurdle following a Wells notice received by the NFT platform CyberKongz from the Securities and Exchange Commission (SEC).
In a recent post, CyberKongz expressed concerns over the SEC’s stance that issuing an ERC-20 token alongside a blockchain game without registering it as a security could have serious consequences. This development has raised red flags for the Web3 gaming industry, with CyberKongz vowing to challenge this regulatory position.
A Wells notice signals that the SEC has concluded a preliminary investigation and is contemplating enforcement action against an entity. CyberKongz now has 30 days to respond to this notice.
One of the SEC’s key issues with CyberKongz centers on the “sale” of Genesis Kongz NFTs in April 2021, which the platform claimed was a contract migration rather than a primary sale.
Despite CyberKongz’s assertions that it has never raised significant capital and operates mostly on a bootstrapped budget, the SEC’s actions could have far-reaching implications for the emerging industry. The platform has been grappling with regulatory pressure for the past two years and views this latest enforcement action as a setback orchestrated by the current administration.
Amidst these challenges, CyberKongz has received words of encouragement from industry veterans, including Jihoz Zirlin, one of the founders of Axie Infinity. Zirlin expressed confidence that the industry will weather this storm.
CyberKongz NFTs, known for their randomly generated social avatars for gaming, have maintained their value despite the regulatory uncertainties. The average floor price for CyberKongz NFTs has seen an 11.7% increase in the past 24 hours, reaching 6.69 Ether (ETH) or approximately $26,900.
While CyberKongz NFTs are still available on NFT marketplace OpenSea, the platform has yet to respond to requests for comment on the SEC’s Wells notice.
In a parallel development, Immutable, an Australian NFT and gaming company, also received a Wells notice from the SEC in November. However, no enforcement actions have been reported by the firm so far.
As the regulatory landscape evolves, the gaming token space remains on tenterhooks, awaiting further clarity and guidance to navigate these challenging times. For the latest updates and insights on this issue and more, subscribe to our newsletter, Markets Outlook.