On Monday, Hong Kong’s Securities and Futures Fee (SFC) launched a press release warning buyers concerning the dangers of nonfungible tokens, or NFTs, which have soared in reputation in recent times. The regulatory physique wrote:

“As with different digital property, NFTs are uncovered to heightened dangers, together with illiquid secondary markets, volatility, opaque pricing, hacking and fraud. Traders needs to be conscious of those dangers, and if they can’t absolutely perceive them and bear the potential losses, they need to not put money into NFTs.”

Nevertheless, it seems that the SFC’s particular concern lies within the securitization of NFTs. “Nearly all of NFTs noticed by the SFC are supposed to characterize a novel copy of an underlying asset equivalent to a digital picture, art work, music or video,” which don’t require regulation by the SFC.

However property that push the boundary between collectibles and monetary property, equivalent to fractionalized or fungible NFTs structured as securities or collective funding schemes (CIS) in NFTs, do fall below the SFC’s mandate. The solicitation of Hong Kong residents by corporations engaged in these actions require the issuer to acquire a license from the SFC until an exemption applies.

CIS has lately gained traction as they current a believable resolution for particular person buyers to acquire fractional possession of real-life collectibles that will be in any other case too cost-prohibitive for any single get together. But, questions persist as as to if such funding buildings represent securitization.

One current effort launched by the Royal Museum of Positive Arts Antwerp (KMSKA) to tokenize a million-euro traditional portray on the blockchain was carried out by way of debt securitization. The enterprise met regulatory necessities by way of assistance from blockchain entities Rubey and Tokeny.