An official told people at Korea Blockchain Week on Tuesday that non-fungible tokens (NFTs) that are part of a collection will have to follow new crypto rules from the European Union. These rules are meant to warn investors of risks.
Even though it had been said before that the new ownership tokens would not be covered by the bloc’s new Markets in Crypto Assets (MiCA) law, the comments were made anyway. The EU reached a political agreement on MiCA at the end of June. How to handle NFTs, which offer a digital way to prove ownership of assets like artworks and can be traded, was a major sticking point until the very end.
Even though the deal settled the most important political parts of the law, there is still no text. In theory, official statements say that the final version of the law doesn’t apply to NFTs unless they are some other kind of crypto asset. Peter Kerstens of the European Commission has said that a carve-out might not help much in the real world.
EU lawmakers “take a very narrow view of what an NFT is,” Kerstens, an adviser for technological innovation at the commission’s financial-services arm, said, implying that few assets will benefit from the exemption.
“If a token is issued as part of a collection or series, even if the issuer calls it an NFT and each token in that series is unique, it is still not considered an NFT, so the requirements will still apply,” Kerstens said.
That would mean that people who sell NFT collections would have to publish a white paper with details about the protocol used by the NFTs. They also wouldn’t be able to make wild claims about the value of the NFTs in the future that could trick people into buying, he said.
EU national governments thought that adding NFTs to MiCA would be an unjustified expansion of a bill that was meant 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 worried. They said that the NFT market is prone to price manipulation like wash trading, which happens in the securities market.
Kerstens had said before that it would be “stupid” to require a white paper for every NFT. A white paper is a long regulatory document that is similar to a stock prospectus. People were worried that the idea that NFT platforms like OpenSea might have to get permission from regulators would kill innovation in this new field.
In 2020, the European Commission, which is the EU’s main governing body, came up with the first draft of MiCA. Since then, it has helped the EU’s Council and Parliament talk about how to change the law.