NFT Act Moves Forward as U.S. Congress Targets Regulatory Overreach

• The NFT Act, introduced by Reps. Timmons and Torres seek to classify certain NFTs as non-securities for consumer applications.
• The bill aims to curb regulatory overreach, addressing past SEC enforcement actions against NFT projects.
• With a change in SEC leadership, the agency’s unexplored crypto task force signals a move toward cooperation.

Two U.S. lawmakers are advocating for the inclusion of legal protections for non-fungible tokens (NFTs) in a proposed digital asset regulatory framework. Representative William Timmons confirmed efforts to integrate the New Frontiers in Technology Act into a revised version of the Financial Innovation and Technology for the 21st Century Act. 

NFTs and Regulatory Clarity

The NFT Act, which Timmons introduced in December with Representative Ritchie Torres (D-NY), would define certain NFTs, including digital art, video game assets, and memberships, as non-securities. The proposed bill would offer regulatory certainty on NFTs used in consumer applications, excluding those marketed as investment contracts or other financial instruments.

Lawmakers argue that a clear legal framework is necessary to prevent regulatory overreach. Torres referenced past enforcement actions, including the U.S. Securities and Exchange Commission (SEC) requiring the destruction of NFTs linked to the 2023 animated series Stoner Cats. The SEC also charged Los Angeles-based media company Impact Theory with securities violations over its NFT sales and targeted NFT marketplace OpenSea with regulatory scrutiny.

Changes in SEC Leadership and Approach

Under former SEC Chair Gary Gensler, NFTs remained in a legal gray area. His tenure saw multiple enforcement actions against NFT projects, prompting criticism from lawmakers and industry participants. SEC Commissioners Mark Uyeda and Hester Peirce dissented on certain NFT-related enforcement cases, arguing that the agency was inconsistently applying securities laws.

After Gensler’s resignation, Uyeda and Peirce signaled a change in regulatory strategy. The SEC’s new crypto task force hopes to collaborate more with digital asset firms and its work will not be as enforcement-driven. The NFT Act is in keeping with this trajectory, proposing to clarify the SEC’s jurisdiction over NFTs and digital assets.

The proposed legislation also mandates a study by the U.S. Comptroller General on NFT applications in business, including their use in documents, identification, and government records. Crypto advocacy group The Digital Chamber has endorsed the bill, emphasizing its importance in ensuring fair treatment of NFT projects.