NFT Gaming Project CyberKongz Gets Wells Notice from the SEC

CyberKongz, an NFT gaming project, was issued the Wells notice by the U.S. Securities and Exchange Commission (SEC), signaling a potential enforcement action. The SEC’s increased scrutiny highlights the agency’s endeavour to oversee the blockchain gaming sector, ensuring compliance with the existing securities laws.

Responding to the notice, the project posted an image on their X profile with the caption- “Fighting for our Industry.” Also, it raised concern over the ERC-20 token issued alongside a blockchain game that requires registration as a security. Further, the gaming project stated that such a stance could have “significant consequences” for the Web3 gaming space and vowed to challenge the SEC’s perspective. 

Placing emphasis on the letter, the Wells notice is issued by the SEC to an individual or firm to let them know of an impending enforcement action. After receiving the notice, the recipient must respond within 30 days before the SEC takes the next step. Based on the response, the SEC would either process the examination or disclose the case.

Criticizing the SEC for the notice, CyberKongz explained that the SEC issues are partly due to the “sale” of its Genesis Kongz NFTs in April 2021. The project insisted that this was more of a contract migration than the first sale. It highlighted that the project has been mostly self-funded and has been “silently suffering for two years.”

This is not the first time that the SEC has taken enforcement action against a crypto project. CyberKongz is just one of the many examples of the agency’s attempt to regulate the fast-growing crypto and NFT markets. Earlier, the SEC sent a Wells Notice to Immutable in Australia. 

However, since its launch, CyberKongz NFTs have withstood regulatory problems within the market. According to CoinGecko data, the CyberKongz NFTs price surged by more than 19% following the announcement, averaging 8.59 ETH or about $26,900. 

The outcome of this case would decide the future of token sales used in such projects. Further, it will showcase the journey of upcoming digital asset projects amid regulatory structure and innovation.