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The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins. The idea they have some sort of value and

The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins. The idea they have some sort of value and can be considered a security, doesn't really. It is no different than the current in-game marketplaces that sell/resell skins from whatever game has skins this week. At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker? I don't own crypto or NFTs, so maybe I'm just not informed enough?

bonestamp2 3y ago
It's a good question. I suppose it's possible that if your local baseball card store started marketing baseball cards as an investment, rather than a collectable, then they would land on the SEC's radar if they got big enough.
cscheid 3y ago
> At what point does a thing you buy or sell become a security? Are baseball cards a security? I don’t know about baseball cards, but the way Wizards of the Coast handles their policy around rare Magic: the Gathering cards makes me think their lawyers are definitely concerned about this kind of stuff.
- plorkyeran 3y ago
  WotC's steadfast refusal to publicly acknowledge the secondary resale market in any way gets comical at times, but they are a good example of how you should behave if you suspect you might have accidentally created a security.
  - vkou 3y ago
    Is there any chance you, or someone else with knowledge of this could elaborate?
    - bigger_cheese 3y ago
      In the case of Magic the Gathering in the 90's (the early days of MTG), Wizards of the Coast released a print run of cards the "Chronicles" set which contained reprints of cards from the earliest days of the game. This caused a large controversy because the chronicles print run was massively larger than earlier print runs and suddenly there was an influx of cards in circulation where previously due to the limited print runs of the early sets these cards were exceptionally rare. This tanked the value of the secondary card market. Due to the bad PR and negative attention this caused at the time WotC ended up publishing "The Reserved list" a list containing around 550 cards which they guarantee will never be reprinted. This means for an iconic MTG card like "Black Lotus" there is a limited number of these cards in circulation and no new Black Lotuses will ever be printed. The reserved list somewhat mollified the people that were baying for Wotc's blood at the time but now 30 years later it is more or less regarded as a mistake. There are a lot of armchair lawyers etc speculating on if they could ever renege on the reserve list and if it even represents an enforceable contract. WotC have basically refused to comment (possibly lawyers have told them not too).
jurynulifcation 3y ago
I am not a financial person. This is speculation on my part. Please correct me where applicable. It seems to me the operative difference between crypto assets and other collectibles is the market-making aspects and the original promises. Full-stop, the vast majority of NFTs and crypto assets are being hyped as investments. This covers the original promise. The market-making aspect is in how these collectibles accrue value. Most collectibles rely on a secondary market, whereas crypto assets don't seem to have an appreciable difference in secondary vs primary markets. This means the same asset is meant to accrue value in the venue it is originally purchased, among the same conceptual group of purchasers. I also wouldn't be surprised to find out that the utter uselessness of most crypto assets plays into their status as securities (or not).
namdnay 3y ago
The test for “is it a security” revolves around the idea of investing in a common enterprise with the expectation of returns. Sellers of TF2 skins or Football cards at no point advertise that they are an investment and that buyers should expect returns
solardev 3y ago
The two dissenting commissioners (linked in the OP) have the same questions.
wonderwonder 3y ago
I think the issue in this case was the marketing. They seemed to be pitching a guaranteed increase in price. Which you just cant do.
pdabbadabba 3y ago
> At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker? The SEC's legal theory is specific to this case, and does not seem to apply generally to all NFTs. Here's the SEC's explanation: > According to the SEC’s order, from October to December 2021, Impact Theory offered and sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” and “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” and, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.
RC_ITR 3y ago
This comes back to the core problem of crypto though - I agree that transferring skins would be cool or whatever, but distributed consensus does almost nothing to accomplish that. A game developer already has to opt-in to the NFT system and then maintain indefinite support for the NFT system, so if you trust them to do that why don’t you also trust them to maintain the ownership ledger?
- mattdesl 3y ago
  There’s a lot of reasons this mechanism would be interesting for a game developer besides trust. e.g. mitigating payment processor fees. But to your question of trust, one interesting application would be in distributed & decentralized games intended to be released to the commons, see Dark Forest or Lattice.xyz. For these OSS projects, even if the original game devs decided to stop development, the community could permissionlessly continue to build atop the game’s immutable contracts.
  - gmerc 3y ago
    It’s a completely made up problem for which crypto is supposedly the solution - We’ve known for 2 decades how to do skin or items exchange between games. It involves relational databases. Valve does it for their games or at least could do it at will. There’s not one unsolved technical problem here - There is zero incentive for developers, publishers and licensors (you know the people that make up the game industry) to adopt any of it. My company dies, the licenses terminate and your items are toast. Technology does not at all change any of it because it’s not a technology problem. It’s a licensing problem. And if I paid for the license, by god no other developer else should get that value for free. - Developers don’t want other developers to affect their own games, affecting visual design, polygon budgets, performance, power or any other aspect of the game. No benefit, only drawbacks. - No, we don’t want you to bring your lightsaber or mickey mouse costume (you know assets that people actually find valuable) int our game because that’s a straight visit from the lawyers at the house of mouse and probably makes our carefully crafted game look like ass. - No middleman is only a problem if you need a middleman or the middleman fails to deliver value. Not if you can be the middleman. People attempt to muddle this down to a payments processor issue, but the last decade has shown crypto is just plain shit at that, from gas fees to security, lack of customer protection and any other dimension. And if it’s not payment, well, we could just as well use a database to share games between developers at the same publisher or valve. - People bring up demand for external markets like Diablo’s Auction house. But these demand economies are fractions of the overall game value systems and increasing the focus on the fraction very quickly erodes and destroys the main game. - IP licensors don’t benefit if people carry their IP from game to game unless game and game pay the fee - Publishers don’t want to give telemetry or data associated with the movement of players to others. Sorry, that’s just not a good idea. And they want to sell you items again, not you hoarding older items. Even gamers … don’t want it. They understand that this is mostly crypto bro driven attempts of turning every game into a gacha / real world money affects escapism fantasy for people with less money when every rich brat is parading their instagram assets through town. The only people who think this is a great idea (including Boz) are in silicon valley with a long history of failing to understand games.
evilantnie 3y ago
From what I'm reading here, the company misled "investors" by attaching the NFT to ownership in the company, which would be considered a security. "The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts." When I purchase a baseball card, I do not have the expectation that there is any additional value attached to the baseball card beyond what the collector's market will pay.
- playday 3y ago
  With baseball cards, You have an expectation that the MLB will continue to promote and develop Baseball as a top sport. You purchased an illegal security.
  - post-it 3y ago
    You'd best file an amicus brief with your analysis.
    - playday 3y ago
      Unfortunately the defendant settled, instead of fighting in court like they should have.
      - yieldcrv 3y ago
        Its also worth nothing that the SEC is losing in court, losing the support of Congress and losing the support of the White House specifically as more people, including judges, notice this lack of distinction and the SEC’s unwillingness (and inability) to describe why there is a distinction there is either a way to issue crypto collections and collect money for them without being a security, or all other collections sold are securities with unregistered broker dealers operating illegally and fraudulently for the past 100 years
        3y ago
pizzalife 3y ago
>At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker? Does your local baseball card shop advertise the cards as an investment that will increase in value? From the link: "Impact Theory sold almost $30 million of NFTs along with making loud promises that the NFTs would increase in value". >I don't own crypto or NFTs, so maybe I'm just not informed enough? This is a bad-faith "I'm just asking questions" comment and every negative post about cryptocurrency stuff has comments like yours.
ramijames 3y ago
That's exactly what we've been trying to build at Ultra.io The push back from gamers has been non-stop and intense. I don't get it. They are willing to buy digital assets which can't be resold on an open market. They are not willing to buy digital assets that can. It's kind of bonkers.
- throwaway1777 3y ago
  Because people want to play games that are fun not grind on some play to earn scheme or cash grab. turning games into marketplaces often ruins the fun.
- tmpz22 3y ago
  Most gamers aren’t whales. Most gamers don’t want NFTs polluting an already stagnating games industry as they recognize those psychological levers preyed on through MTX mechanics are just wrong and at their worst reflect the worst aspects of the gambling industry.
- edent 3y ago
  Because there's no guarantee that those assets will be respected. At any point the game maker can say "V1 assets aren't supported in V2". Or they can flood the market with "rare" items. Or they'll buy an item which was "stolen" and have it unilaterally revoked. Or... the list goes on. There's also zero possibility of cross-game use. If ID releases the BFG9000 for free, is Skyrim going to let you shoot that at dragons? But, here's the thing, don't listen to me. Listen to your (potential) customers. If they're all telling you that they don't want to buy what you're selling then take that as a sign.
  - acdha 3y ago
    Just to expand on your last point, I read their ad copy and once you strip out all of the meaningless filler text you have this key quote: “with the permission of the developer”. If they weren’t going to do it before, this can’t force them and if they were, they don’t need it. As a game buyer, that sounds like doubling the number of companies who need to be paid and whose business decisions or failure will break things, add additional fees, etc. “Our incredible journey” is another way to say “you’re going to get server errors if you try to use your purchases”. As a game developer, that sounds like I still have to do almost all of the work but now I’m locking in payments and giving up some control of my business to another party whose interests only partially correlate with mine or my partner developers’. In both cases, there doesn’t seem to be enough value to support a sustainable business. Any two game developers are going to need to collaborate to share anything between games, and there’s a really upper bound on how much money they’ll pay before cutting out the middleman starts to look really compelling. Similarly, many gamers don’t like pay to win and won’t pay anything for cosmetic items so you’re chasing the percentage of people who both do and are willing to pay more upfront and more later despite not even knowing what future games would offer that option or how much they’ll charge.
Gormo 3y ago
> The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins. NFTs are/will be really useful to account for transactions involving unique assets or bundles of rights associated with unique assets. They're perfectly suited for things like writing digital deeds to real property, transferring ownership of IP, validating chains of provenance for various items, etc. The problem is that the current use cases are all spurious. NFTs used for "artwork" are neither transferring ownership of a unique fixed form of media nor used to convey any IP rights associated with the artwork. In these use cases, the NFT itself is non-fungible, but it encodes a reference to an external item that is both fungible and intangible, which makes it little more than a novelty.

bonestamp2 3y ago

It's a good question. I suppose it's possible that if your local baseball card store started marketing baseball cards as an investment, rather than a collectable, then they would land on the SEC's radar if they got big enough.

cscheid 3y ago

> At what point does a thing you buy or sell become a security? Are baseball cards a security? I don’t know about baseball cards, but the way Wizards of the Coast handles their policy around rare Magic: the Gathering cards makes me think their lawyers are definitely concerned about this kind of stuff.

plorkyeran 3y ago
WotC's steadfast refusal to publicly acknowledge the secondary resale market in any way gets comical at times, but they are a good example of how you should behave if you suspect you might have accidentally created a security.
- vkou 3y ago
  Is there any chance you, or someone else with knowledge of this could elaborate?
  - bigger_cheese 3y ago
    In the case of Magic the Gathering in the 90's (the early days of MTG), Wizards of the Coast released a print run of cards the "Chronicles" set which contained reprints of cards from the earliest days of the game. This caused a large controversy because the chronicles print run was massively larger than earlier print runs and suddenly there was an influx of cards in circulation where previously due to the limited print runs of the early sets these cards were exceptionally rare. This tanked the value of the secondary card market. Due to the bad PR and negative attention this caused at the time WotC ended up publishing "The Reserved list" a list containing around 550 cards which they guarantee will never be reprinted. This means for an iconic MTG card like "Black Lotus" there is a limited number of these cards in circulation and no new Black Lotuses will ever be printed. The reserved list somewhat mollified the people that were baying for Wotc's blood at the time but now 30 years later it is more or less regarded as a mistake. There are a lot of armchair lawyers etc speculating on if they could ever renege on the reserve list and if it even represents an enforceable contract. WotC have basically refused to comment (possibly lawyers have told them not too).

jurynulifcation 3y ago

I am not a financial person. This is speculation on my part. Please correct me where applicable. It seems to me the operative difference between crypto assets and other collectibles is the market-making aspects and the original promises. Full-stop, the vast majority of NFTs and crypto assets are being hyped as investments. This covers the original promise. The market-making aspect is in how these collectibles accrue value. Most collectibles rely on a secondary market, whereas crypto assets don't seem to have an appreciable difference in secondary vs primary markets. This means the same asset is meant to accrue value in the venue it is originally purchased, among the same conceptual group of purchasers. I also wouldn't be surprised to find out that the utter uselessness of most crypto assets plays into their status as securities (or not).

namdnay 3y ago

The test for “is it a security” revolves around the idea of investing in a common enterprise with the expectation of returns. Sellers of TF2 skins or Football cards at no point advertise that they are an investment and that buyers should expect returns

solardev 3y ago

The two dissenting commissioners (linked in the OP) have the same questions.

wonderwonder 3y ago

I think the issue in this case was the marketing. They seemed to be pitching a guaranteed increase in price. Which you just cant do.

pdabbadabba 3y ago

> At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker? The SEC's legal theory is specific to this case, and does not seem to apply generally to all NFTs. Here's the SEC's explanation: > According to the SEC’s order, from October to December 2021, Impact Theory offered and sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” and “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” and, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.

RC_ITR 3y ago

This comes back to the core problem of crypto though - I agree that transferring skins would be cool or whatever, but distributed consensus does almost nothing to accomplish that. A game developer already has to opt-in to the NFT system and then maintain indefinite support for the NFT system, so if you trust them to do that why don’t you also trust them to maintain the ownership ledger?

mattdesl 3y ago
There’s a lot of reasons this mechanism would be interesting for a game developer besides trust. e.g. mitigating payment processor fees. But to your question of trust, one interesting application would be in distributed & decentralized games intended to be released to the commons, see Dark Forest or Lattice.xyz. For these OSS projects, even if the original game devs decided to stop development, the community could permissionlessly continue to build atop the game’s immutable contracts.
- gmerc 3y ago
  It’s a completely made up problem for which crypto is supposedly the solution - We’ve known for 2 decades how to do skin or items exchange between games. It involves relational databases. Valve does it for their games or at least could do it at will. There’s not one unsolved technical problem here - There is zero incentive for developers, publishers and licensors (you know the people that make up the game industry) to adopt any of it. My company dies, the licenses terminate and your items are toast. Technology does not at all change any of it because it’s not a technology problem. It’s a licensing problem. And if I paid for the license, by god no other developer else should get that value for free. - Developers don’t want other developers to affect their own games, affecting visual design, polygon budgets, performance, power or any other aspect of the game. No benefit, only drawbacks. - No, we don’t want you to bring your lightsaber or mickey mouse costume (you know assets that people actually find valuable) int our game because that’s a straight visit from the lawyers at the house of mouse and probably makes our carefully crafted game look like ass. - No middleman is only a problem if you need a middleman or the middleman fails to deliver value. Not if you can be the middleman. People attempt to muddle this down to a payments processor issue, but the last decade has shown crypto is just plain shit at that, from gas fees to security, lack of customer protection and any other dimension. And if it’s not payment, well, we could just as well use a database to share games between developers at the same publisher or valve. - People bring up demand for external markets like Diablo’s Auction house. But these demand economies are fractions of the overall game value systems and increasing the focus on the fraction very quickly erodes and destroys the main game. - IP licensors don’t benefit if people carry their IP from game to game unless game and game pay the fee - Publishers don’t want to give telemetry or data associated with the movement of players to others. Sorry, that’s just not a good idea. And they want to sell you items again, not you hoarding older items. Even gamers … don’t want it. They understand that this is mostly crypto bro driven attempts of turning every game into a gacha / real world money affects escapism fantasy for people with less money when every rich brat is parading their instagram assets through town. The only people who think this is a great idea (including Boz) are in silicon valley with a long history of failing to understand games.

evilantnie 3y ago

From what I'm reading here, the company misled "investors" by attaching the NFT to ownership in the company, which would be considered a security. "The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts." When I purchase a baseball card, I do not have the expectation that there is any additional value attached to the baseball card beyond what the collector's market will pay.

playday 3y ago
With baseball cards, You have an expectation that the MLB will continue to promote and develop Baseball as a top sport. You purchased an illegal security.
- post-it 3y ago
  You'd best file an amicus brief with your analysis.
  - playday 3y ago
    Unfortunately the defendant settled, instead of fighting in court like they should have.
    - yieldcrv 3y ago
      Its also worth nothing that the SEC is losing in court, losing the support of Congress and losing the support of the White House specifically as more people, including judges, notice this lack of distinction and the SEC’s unwillingness (and inability) to describe why there is a distinction there is either a way to issue crypto collections and collect money for them without being a security, or all other collections sold are securities with unregistered broker dealers operating illegally and fraudulently for the past 100 years
      - 3y ago

pizzalife 3y ago

>At what point does a thing you buy or sell become a security? Are baseball cards a security? Should my local baseball card shop be closed down as an unregistered securities broker? Does your local baseball card shop advertise the cards as an investment that will increase in value? From the link: "Impact Theory sold almost $30 million of NFTs along with making loud promises that the NFTs would increase in value". >I don't own crypto or NFTs, so maybe I'm just not informed enough? This is a bad-faith "I'm just asking questions" comment and every negative post about cryptocurrency stuff has comments like yours.

ramijames 3y ago

That's exactly what we've been trying to build at Ultra.io The push back from gamers has been non-stop and intense. I don't get it. They are willing to buy digital assets which can't be resold on an open market. They are not willing to buy digital assets that can. It's kind of bonkers.

throwaway1777 3y ago
Because people want to play games that are fun not grind on some play to earn scheme or cash grab. turning games into marketplaces often ruins the fun.
tmpz22 3y ago
Most gamers aren’t whales. Most gamers don’t want NFTs polluting an already stagnating games industry as they recognize those psychological levers preyed on through MTX mechanics are just wrong and at their worst reflect the worst aspects of the gambling industry.
edent 3y ago
Because there's no guarantee that those assets will be respected. At any point the game maker can say "V1 assets aren't supported in V2". Or they can flood the market with "rare" items. Or they'll buy an item which was "stolen" and have it unilaterally revoked. Or... the list goes on. There's also zero possibility of cross-game use. If ID releases the BFG9000 for free, is Skyrim going to let you shoot that at dragons? But, here's the thing, don't listen to me. Listen to your (potential) customers. If they're all telling you that they don't want to buy what you're selling then take that as a sign.
- acdha 3y ago
  Just to expand on your last point, I read their ad copy and once you strip out all of the meaningless filler text you have this key quote: “with the permission of the developer”. If they weren’t going to do it before, this can’t force them and if they were, they don’t need it. As a game buyer, that sounds like doubling the number of companies who need to be paid and whose business decisions or failure will break things, add additional fees, etc. “Our incredible journey” is another way to say “you’re going to get server errors if you try to use your purchases”. As a game developer, that sounds like I still have to do almost all of the work but now I’m locking in payments and giving up some control of my business to another party whose interests only partially correlate with mine or my partner developers’. In both cases, there doesn’t seem to be enough value to support a sustainable business. Any two game developers are going to need to collaborate to share anything between games, and there’s a really upper bound on how much money they’ll pay before cutting out the middleman starts to look really compelling. Similarly, many gamers don’t like pay to win and won’t pay anything for cosmetic items so you’re chasing the percentage of people who both do and are willing to pay more upfront and more later despite not even knowing what future games would offer that option or how much they’ll charge.

Gormo 3y ago

> The concept of NFTs stored on a distributed ledger makes sense to me especially for the shitty games that sell skins. NFTs are/will be really useful to account for transactions involving unique assets or bundles of rights associated with unique assets. They're perfectly suited for things like writing digital deeds to real property, transferring ownership of IP, validating chains of provenance for various items, etc. The problem is that the current use cases are all spurious. NFTs used for "artwork" are neither transferring ownership of a unique fixed form of media nor used to convey any IP rights associated with the artwork. In these use cases, the NFT itself is non-fungible, but it encodes a reference to an external item that is both fungible and intangible, which makes it little more than a novelty.