SEC Launches Probe into Yuga Labs – What Does it Mean For Broader NFT Market?
Wall Street’s biggest regulator has set sight on NFTs, probing Bored Ape Yacht Club creator Yuga Labs over illegal security offerings.
Key Takeaways
- The SEC has launched a probe into BAYC creators Yuba Labs.
- The regulatory agency wants to determine whether the company’s NFTs are similar to stocks and equities.
- It also examines if Yuga’s distribution of ApeCoin constitutes a violation of federal securities laws.
The Securities and Exchange Commission (SEC) has reportedly launched an investigation into Yuba Labs, creators of the popular non-fungible token (NFT) collection Bored Ape Yacht Club (BAYC).
The investigation is aimed at determining whether the company’s non-fungible tokens are similar to stocks and equities and thus should be subject to the same rules that govern these assets, Bloomberg reported, adding that the agency is also examining whether the company’s distribution of ApeCoin constitutes a violation of federal securities laws.
While Yuga Labs is under investigation, it has not been accused of any violation, the report clarified. This means the SEC might not enforce legal actions against the company.
Meanwhile, the Miami-based company has said it is committed to cooperating with the authorities to help define the NFT sector. It noted,
“It’s well-known that policymakers and regulators have sought to learn more about the novel world of web3. We hope to partner with the rest of the industry and regulators to define and shape the burgeoning ecosystem. As a leader in the space, Yuga is committed to fully cooperating with any inquiries along the way.”
Yuga Labs Growing Dominance
Founded over a year ago, Yuga labs has quickly emerged as a major player within the NFT sector. The company owns the popular BAYC collection, the Mutant Ape Yacht Club (MAYC), and the Bored Ape Kennel Club.
The company’s offerings are popular among NFT enthusiasts and have even attracted celebrities and famous personas, including the likes of Jimmy Fallon, Justin Bieber, Neymar, and Snoop Dogg.
In March, Yuga Labs revealed it had purchased the Intellectual Property (IP) rights to the CryptoPunks and Meebits NFT collections, two rival NFT collections. Consequently, Yuga Labs now owns some of the most valuable NFT collections in the world.
According to crypto data aggregator CryptoSlam, three of the company’s six NFT collections are among the top ten NFT collections by sales volume. Furthermore, the secondary sale of Yuga’s NFT collections has surpassed over $5.5 billion.
The BAYC alone accounts for nearly $2.5 billion of that tally, while the MAYC and Otherside collections make up another $3.35 billion. Notably, the company earns a 2.5% royalty fee for each sale.
In March, Yuga Labs launched ApeCoin, the Ethereum-based token that acts as a governance and utility token for the ApeCoin DAO and Ape ecosystem. ApeCoin holders can vote and influence how the decentralized autonomous organization (DAO) is managed.
Following the successful launch of the ApeCoin in March, the token’s value surged to $24 at the end of April. Subsequently, it lost over 75% of its value, plummeting to around $6 in May. Its decline was in line with the general downturn experienced by the cryptocurrency market and the ensuing bear market.
Since then, the token’s price has fluctuated around the $5 mark. However, the SEC’s probe news saw the token lose even more ground, falling by nearly 9% to around $4.7 in the past 24 hours.
SEC Sets Sights On NFTs
The SEC’s investigation into Yuga Labs is the latest in a series of probes linked to cryptocurrencies and NFTs. Since March, the regulatory watchdog has continuously scrutinized NFT creators and crypto exchanges. The commission’s enforcement unit has even sent subpoenas requesting information regarding token offerings.
Under the leadership of Gary Gensler, the SEC has taken a hard stance against digital assets. Gensler has repeatedly claimed that some crypto assets fall under the category of securities, and thus they should be under the SEC’s jurisdiction.
The SEC has also filed dozens of enforcement actions against companies that deal with digital assets for failing to register with the agency. One such move resulted in a $50 million fine against BlockFi in February. Crypto exchange Coinbase was also subject to a probe by the agency for its listing of some digital assets that the SEC deemed as securities.
The SEC’s probe into Yuba Labs shows that NFTs have also come under its sights. This may have far-reaching consequences within the sector. Firstly, the investigation would negatively impact the rapid growth of NFTs. Creators and investors alike would be discouraged from launching new projects for fear of flaunting SEC rules and being penalized.
Secondly, if the SEC determines that NFTs fall under the criteria of securities, projects would need to register with the agency. This could lead to more restrictions on how these digital assets can be brought, sold, and used. Furthermore, it would significantly stifle growth and innovation within the NFT industry.
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