FTX.US Will Not List NFT Projects Offering Holder Royalties

FTX.US announced that its new non-fungible token (NFT) marketplace would not list projects rewarding royalties to NFT holders.

Snoopy looks at No Dogs Allowed in Library sign
No Dogs Allowed

Crypto marketplace FTX drew criticism last week when its American outlet, FTX.US, announced that its new non-fungible token (NFT) marketplace would not list projects rewarding royalties to NFT holders. FTX.US joins OpenSea, the world's largest Ethereum NFT marketplace, in delisting holder royalty projects.

NFT Royalties

The blockchain allows NFT creators to claim royalties on primary and secondary sales, regardless of where the sale takes place. Depending on the project, NFT holders, the people who own the NFT, may also receive royalties for secondary sales of NFTs from the same collection.

Unfortunately, many believe the U.S. Securities and Exchange Commission will consider an NFT to be a security if its holders can claim royalties. This places a regulatory burden on the marketplaces selling the NFTs in the US that the marketplace, and likely the project, cannot meet due to their decentralized nature.

FTX.US explains, “We will list NFT projects that pay royalties to the artists/creators, but we can’t list those projects which distribute the royalties from collection sales to NFT holders. A token which guarantees you a percentage income stream from the sales of a pool of assets starts to look like a security.” FTX.US is centralized and is registered to do financial business in the US. The NFT marketplace at FTX.US allows fiat transactions and requires customers to complete a KYC process.

NFT Projects React

NFT projects have generally been upset with FTX.US and OpenSea because they see this as evidence of the major centralized exchanges dictating the structure of NFT projects. NFT projects believe that if the major exchanges refuse to list a project, they may struggle to gain traction. Unfortunately, the US market is so large that many major exchanges will adhere to US law if possible.

FTX.US is the first major crypto exchange to offer a Solana NFT marketplace, and its announcement sent shockwaves through the Solana NFT community.

Meerkat Millionaires Country Club spoke out against FTX, claiming that FTX.US supported their project initially but now refuses to list it. Meerkats will still be available on decentralized exchanges like Solanart and Alpha.Art.Other projects, such as Turtles and Solarians, had previously announced holder royalties but are now changing course to meet FTX.US's requirements. Turtles claims it cut holder royalties specifically to access FTX's liquidity, “We wanted to be on FTX because we thought FTX can bring us more people and more liquidity.”