Hong Kong's Securities and Futures Commission warn of nonfungible token risks
On Monday, Hong Kong’s Securities and Futures Fee (SFC) launched a press release warning traders concerning the dangers of nonfungible tokens, or NFTs, which have soared in reputation in recent times. The regulatory physique wrote:
“As with different digital property, NFTs are uncovered to heightened dangers, together with illiquid secondary markets, volatility, opaque pricing, hacking and fraud. Buyers ought to be conscious of those dangers, and if they can not totally perceive them and bear the potential losses, they need to not put money into NFTs.”
Nonetheless, it seems that the SFC’s particular concern lies within the securitization of NFTs. “Nearly all of NFTs noticed by the SFC are meant to symbolize a singular copy of an underlying asset equivalent to a digital picture, art work, music or video,” which don’t require regulation by the SFC.
However property that push the boundary between collectibles and monetary property, equivalent to fractionalized or fungible NFTs structured as securities or collective funding schemes (CIS) in NFTs, do fall beneath the SFC’s mandate. The solicitation of Hong Kong residents by corporations engaged in these actions require the issuer to acquire a license from the SFC until an exemption applies.
CIS has not too long ago gained traction as they current a believable answer for particular person traders to acquire fractional possession of real-life collectibles that may be in any other case too cost-prohibitive for any single social gathering. But, questions persist as as to whether such funding buildings represent securitization.
One latest effort launched by the Royal Museum of High quality Arts Antwerp (KMSKA) to tokenize a million-euro basic portray on the blockchain was carried out through debt securitization. The enterprise met regulatory necessities through assistance from blockchain entities Rubey and Tokeny.