Yuga Labs, one of the most important projects in the Web3 space, is under investigation by the US Securities and Exchange Commission (SEC), according to Bloomberg. Apparently, the investigation will seek to establish if sales of Yuga’s digital assets violate federal law. If so, there could be enormous implications for Yuga Labs, the creators of the BAYC, and the entire NFT landscape. The news comes from a source close to the matter, who remains unnamed.
The SEC continues to crack down on Web3
The US Securities and Exchange Commission – commonly known as The SEC – has been working hard to create a clear set of rules in which NFT projects should operate. However, it is not as easy as that. With an incredibly outdated set of laws, the explosion of web3 and NFTs is a grey area for lawmakers.
The probe into Yuga Labs – the creators of the Bored Ape Yacht Club ecosystem – is the latest case brought forward by SEC Chair Gary Gensler as the SEC attempts to ensure web3 adheres to current regulations.
Previously, Gensler stated that most crypto holdings and assets fall under securities regulation laws set out by the Supreme Court in 1946. In this important ruling, the Supreme Court gave the SEC the ability to determine if investments are securities when there is an expectation of profit.
Other cases that the SEC has won include a massive $50 million fine for BlockFi Inc. Yuga Labs will hope this isn’t the case for them.
Why is The SEC targeting Yuga Labs?
There are several reasons why the SEC might investigate Yuga Labs. Yuga Labs is one of the biggest companies in web3, and the probe is undoubtedly pivotal for NFT laws. Perhaps it is also a message to the broader web3 community to get in line.
One issue that the SEC will attempt to decide is whether NFT tokens are similar to stocks and, if so, whether they should follow the same rules. Stocks have several laws in place, including disclosure laws. Currently, no such rules are in place in the NFT space.
The SEC will also look at ApeCoin, the BAYC governance and utility token. This was given to NFT holders in the BAYC ecosystem for free.
Yuga Labs welcomes the probe
In response to the SEC probe, Yuga Labs has said it would help the government agency with any inquiries it has. Yuga stated, “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.”
Furthermore, in a lighthearted response to the news, @GordonGoner, one of the founders of Yuga Labs, tweeted, “Gm.” This is a famous phrase in the NFT space, meaning good morning.
No evidence to suggest Yuga Labs has broken any laws
Currently, this is a probe into Yuga Labs, and there is no suggestion of any wrongdoing. If the rumors from the unnamed source are true, this is to determine a precedent for whether NFTs are securities.
Significantly, after the news broke, the price of ApeCoin also fell sharply. According to stats from CoinMarketCap, the price dropped around 9%.