CyberKongz, one of the pioneering PFP NFT collections with deep ties to blockchain gaming, has publicly stated that it has received a Wells Notice from the U.S. Securities and Exchange Commission (SEC).
The notice indicates the SEC’s intention to recommend legal action against CyberKongz, alleging that the project may have violated securities laws. In particular, regulators’ concerns focus on the integration of ERC-20 tokens within the CyberKongz ecosystem and technological events related to Genesis Kongz NFTs in 2021.
CyberKongz criticized the SEC’s approach, arguing that it reflects a misunderstanding of blockchain technology and creates uncertainty for other blockchain-based gaming projects.
Source: CyberKongzWhat did the notice say?
The SEC’s primary concern lies with CyberKongz’s use of ERC-20 tokens as part of its blockchain gaming platform. According to CyberKongz, the SEC argues that holding tokens alongside games constitutes a security offering, and CyberKongz says this stance could hinder innovation in web3 games.
In addition to the token, the SEC has been closely examining events related to the Genesis Kongz NFT since April 2021. CyberKongz stated that this event was not a token sale but a smart contract migration (a routine blockchain process). The team expressed concern that the SEC’s interpretation could blur the line between standard technology operations and financial transactions, creating ambiguity for developers across the industry.
“If we cannot distinguish between primary sales and contract migration, what hope is there for a clear regulatory path now?” CyberKongz said.
Source: CyberKongzWhy is this important for blockchain gaming?
The CyberKongz case comes at a time of increased regulatory scrutiny for blockchain projects, including NFTs, decentralized platforms and gaming ecosystems. The SEC also recently issued Wells notices to other major players in the space, including NFT marketplace OpenSea and blockchain gaming platform Immutable.
If the SEC’s position holds, it could set a precedent for how tokens are integrated into blockchain games and raise questions about compliance requirements for developers and projects utilizing similar models.
CyberKongz has oriented its response not only to its own operations but also to the defense of the wider web3 space. The project argues that clear regulatory guidance is needed to support innovation while addressing compliance issues.
CyberKongz pledged to challenge the SEC’s stance, saying, “This discourse will have significant implications for the entire web3 gaming industry and we will defend against this stance across the wider space.”