Paper 39: SEC investigates YUGA
A lawyer's take: do you really need to worry about your animal JPEGs?
Gm team
This week we’ve had more mainstream partnerships, more multi-million dollar hacks, and more attention from Mr Gensler and the SEC.
A lot of NFT projects will have their eyes on the SEC investigation of Yuga - and dare I say it some of them may be sweating…keep reading for my instinctive take as a lawyer…
Hope you enjoy - all the best!
B
Contents
This Week in Crypto
This Week in NFT World
SEC investigates YUGA
Thought of the Week
Meme of the Week
This Week in Crypto
Google partners with Coinbase - Select Google Cloud customers will be able to pay for services using crypto. Coinbase will get a cut from each transaction. One day Google bans crypto ads; the next they accept crypto payments…things are changing…
Hacks on hacks on hacks - This week Mango was hacked for $112m, TempleDAO was hacked for $2.3m, Rabby Swap was hacked for $200k, and Paraswap was hacked (figure unknown). Hate to see it.
Over 12,000 Brazil companies declare crypto holdings in record high -The institutions are coming! We love the idea of it, but since we are down 70%+ from highs not sure it happened. Nevertheless, the number of companies holding cryptocurrency in Brazil has reached new record highs as of August: 12,053 unique organisations declared crypto on their balance sheets in August 2022.
Partnership to Operate Malaysia's National Blockchain Infrastructure Sealed - Malaysia has launched a partnership to launch a national blockchain infrastructure for all levels of its government and commercial sectors. It'll be jointly created and operated by a Malaysia-based layer 1 blockchain structure, Zetrix, and MIMOS Technology Solutions.
2. This Week in NFT World
Yuga Labs investigated by SEC - Are NFTs securities or not? Are we allowed to become millionaires from JPEGs? SEC will let us know soon now that they’ve announced they will investigate the sale of Bored Ape NFTs and the distribution of ApeCoin.
Cool Cats back - With Animoca Brands as a new investor, CC plan to go big in the East. Chairman Yat Siu said, “in our part of the world, we are really inspired by Hello Kitty, and we see absolutely no reason why Cool Cats couldn’t be that, as well.” Market liked the news as price went UP.
CNN shuts down web3 vault - CNN’s vault experiment, where they allowed people to collect famous news events digitally, has been discontinued. A rugpull if I have ever seen one.
DeGods go 0% royalties - Whilst many projects rely on secondary royalties, DeGods have put an end to them. This broke many hearts this week. In the end. it’s your project - monetise as is profitable and how the market permits.
3. SEC investigates YUGA
The SEC has decided to investigate Yuga Labs - the creators of the famous and highly desired NFT collection, The Bored Ape Yacht Club.
Under investigation is the manner in which the NFTs were sold and how APE coin was distributed - the coin which holders very happily received as it made many holders millionaires! (Read my previous article on airdrops to understand how money can be created from nothing in this way.)
The question is whether or not these tokens can be sold without following any sort of disclosure rules (like stocks have to) since it appears that some people are buying with an expectation to make a profit - which means consumers would need protection (in their opinions!).
So why is this a big deal?
Well..
Yuga Labs NFTs make up approx. 25% of the entire NFT marketcap (Apes, Mutants, Doggos, CryptoPunks, Meebits, Otherside Deeds)
They have made $5b in sales across all their collections
They have raised over $450m in VC money
So if Yuga have broken the law, with all of the help they have received (VC, legal), then that is not good news for all of the other NFT projects who have been close to the line of the law and have not had as much legal advice.
So what do I think as an NFT-lover, investor, and lawyer?
First I want to address some of the prevailing sentiment on Twitter. I haven’t seen it all - but I glean that most people think “Yuga are the best in the game, it is best they investigate them, they have good lawyers, therefore we are probably good!”
Maybe. I like the first two statements, I dislike the final two statements.
I agree that it is great for Yuga to be investigated instead of all the other projects. I do think they have done their best to be compliant, and they are a fantastic success story.
Whilst I am sure they have good lawyers, I don’t like the assumption that having good lawyers means you are “probably good”. Having good lawyers means you have a lot of money and are as well positioned for a fight as you could be (again a great reason why it is Yuga who are being investigated instead of others.)
Having good lawyers cannot guarantee that you are fine in an uncertain regulatory environment where the government has been relatively hostile towards your industry.
So is there anything to worry about?
My instinct is - without being super close to the details and not offering legal advice of any sort - is that selling NFTs will almost certainly be fine in all cases so long as you don’t make weird promises of future gains.
But this issue of dropping coins to people which are just “just governance tokens” - and which are very conveniently worth A LOT of money - is a bit more tricky. I believe this is where the real fight lies.
Having said that, we live in a world now where you can’t really just try to destroy the latest unicorn company and biggest name in a new space - can’t stifle innovation.
I liked the Yuga response:
“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 Statement
When I worked at Amazon as a lawyer there were lots of instances where we “worked with” regulators to come to the right conclusions.
Though Yuga may have to pay a toll, this road of partnership is the most sensible path for everyone.
Here are some other hot takes of interest from Twitter:
4. Thought of the Week
I think a lot about producers vs consumers.
Most people are consumers. Of products, but also content.
Becoming a producer is difficult primarily because people can’t get out of their own heads to put themselves out there and not care what others think of them.
Being RECOGNISED as a producer is difficult because it is hard to get people’s attention if lots of people are doing the same thing.
Not many people are in this web3 world right now. This is opportunity.
5. Meme of the Week
When will retail come back? Crypto down, NFTs down, inflation up, etc etc.
We await, with patience…
Shoutout @thedefiedge
Have a great week,
B
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Disclaimer: The content covered in this newsletter is not to be considered as investment advice. It is for informational and educational purposes only.
I hold some of the NFTs mentioned in these newsletters.