Coinbase has launched a new legal defense fund to support non-fungible token (NFT) creators, under its political advocacy initiative called “Stand With Crypto.”
The fund, dubbed “Creator Legal Defense Fund” and valued at $6 million, is designed to assist NFT creators in defending themselves against what Coinbase describes as “misguided actions from the SEC.”
This fund is a collaborative effort between Coinbase, NFT marketplace OpenSea, venture capital firm a16zcrypto, and several law firms. Its main goal is to provide legal support for creators who may face legal challenges due to their involvement with blockchain technology.
“The crypto community has united to defend artists and creators against public policy failures and bad-faith attacks on those looking to build on blockchain technology,” states the fund’s page.
Those eligible for the fund’s support include artists, creators, and developers in the U.S. who have either been contacted by the SEC or are worried about potential legal actions linked to their use of blockchain technology. They can receive free legal consultations and assistance to navigate the legal uncertainties they may encounter.
The launch of this defense fund follows recent developments in the NFT space, particularly the SEC’s ongoing scrutiny of the market.
Last month, OpenSea received a Wells notice from the SEC, as the regulator considers NFTs sold on the platform to be securities. This action has triggered concern within the NFT community, and companies operating in the ecosystem.
The legal challenges are not limited to OpenSea. Earlier in 2023, multiple companies and creators in the NFT space faced penalties and lawsuits related to their NFT activities. For instance, both Impact Theory and Stoner Cats faced significant fines for selling NFTs deemed by the SEC to be unregistered securities.
In July, two artists filed a lawsuit against the SEC, seeking clarity on whether NFTs should be classified as securities. The artists questioned whether they needed to register their NFTs with the SEC before selling them, and if so, whether they were required to disclose risks to potential buyers.
Legal uncertainty in the U.S. surrounding NFTs has contributed to a downturn in the market. Some businesses and creators have started to leave the space due to fear of regulatory action. For example, in July, DraftKings ended its Reignmakers NFT game and marketplace, citing legal concerns.
In response to these challenges, various advocacy groups and industry leaders have called for clearer regulations. The Digital Chamber, a U.S. group focused on blockchain policy, has urged Congress to categorize certain NFTs as consumer goods, not securities, citing the wide range of purposes that NFTs can serve.
While U.S. regulatory uncertainties persist, other countries are taking steps to provide legal clarity. The U.K., for instance, has proposed draft legislation that would recognize cryptocurrencies and NFTs as personal property, with the goal of protecting owners and addressing potential legal issues.
