SEC Notice Threatens Web3 Gaming Innovation
The NFT platform CyberKongz announced on Dec. 16 that it received a Wells notice from the U.S. Securities and Exchange Commission, marking a significant moment for the Web3 gaming industry. The SEC’s position suggests that ERC-20 tokens connected to blockchain games may require registration as securities.
In a statement, CyberKongz said the “unfortunate rhetoric” of the SEC’s position will daunt innovation in the gaming token ecosystem as a whole.
What Is a Wells Notice?
A Wells notice is a formal letter showing that the SEC is contemplating enforcement action after an investigation. Recipients of such a notice have 30 days to respond before further regulatory action is taken.
CyberKongz explained that one issue emanates from its Genesis Kongz NFTs migration in April 2021, which the SEC reportedly viewed as a sale. However, CyberKongz maintains it was a contract migration, not a primary sale, reiterating its history of being largely bootstrapped without capital raises.
The platform also disclosed that it has been “suffering in silence” for two years since the SEC’s initial inquiry.
Broader Implications for Gaming Tokens
If the SEC proceeds, the decision could establish a precedent requiring registration for tokens tied to blockchain gaming, potentially slowing industry development. CyberKongz criticized the move as a “last-minute attempt” by the Biden administration to disrupt the Web3 space.
The team expressed hope for more supportive policies under a future administration, stating:
“Until then, we will fight for NFT projects on all chains.”
Support From Industry Leaders
The news drew solidarity from Jihoz Zirlin, co-founder of Axie Infinity, who said he remains optimistic that future leadership will end the “persecution” of Web3 developers and creators.
NFT Market Reaction
Despite the regulatory uncertainty, CyberKongz NFTs held strong. According to CoinGecko, the average floor price surged 11.7% in the last 24 hours to 6.69 Ether (~$26,900).
CyberKongz NFTs are popular as social avatars and are used in various games, such as “Play & Kollect” and “Adventure Runs,” on the Ronin blockchain.
