Breaking news in the Web3 space, the SEC is now probing crypto leader Yuga Labs over unregistered offerings, specifically the leader’s NFTs and ApeCoin, a cryptocurrency issued by ApeCoin DAO that was adopted by Yuga.

At issue is whether non fungible tokens (NFTs) are investment contracts and thus securities. To determine whether NFTs are securities, it is important to analyze the facts and circumstances surrounding the offering. Does the NFT creator who then becomes the NFT seller have any ongoing managerial efforts that a reasonable person would expect to cause an increase in value? If so, then it may in fact be deemed an investment contract. 

Here, the Twitter handle of Yuga Labs’ Ape Coin has language that implies Yuga Labs may have an ongoing managerial position that a reasonable person would expect to cause an increase in value. As a result, Yuga Labs’ Ape Coin NFTs may fall under the securities definition under SEC rules. If so, these NFTs would be unregistered securities under the law and thus in violation of SEC rules and regulations. 

While the SEC has not actually accused Yuga Labs of any wrongdoing, the development will be important to watch for anyone in the crypto space. Though much of the crypto space is still very much of the wild west, SEC chair Gary Gensler has consistently taken the approach of regulating by enforcement: bringing actions against wrongdoers who may not know or believe they ran afoul of any rules. As Web3 creation continues, so too will Web3 regulation.