NFT Minting and Transactions
I am an artist who wants to mint my own line of Non-Fungible Tokens (“NFTs”), what should I look out for?
Regulation status: NFTs are not a regulated asset class in Singapore by the Monetary Authority of Singapore (MAS), since they are not considered legal tender in Singapore, unlike currency notes and coins issued by the MAS. NFTs, as a result, are not recognised as an approved mode of payment for goods and services. Due to the non-fungible nature of the NFTs, NFTs do not constitute Digital Payment Tokens (“DPTs”) under the Payment Services Act (No.2 of 2019) (“PS Act”), which regulates cryptocurrency service providers and DPTs.
Exemption under the PS Act: Under the PS Act, tokens which fall under the scope of “limited purpose digital payment tokens” are exempted from the application of the PSA, whereby the definition of a “limited purpose digital payment token” is as follows:
Any nonmonetary customer loyalty or reward point(s), any ingame asset(s) or any similar digital representation of value that:
- cannot be returned to its issuer, transferred or sold in exchange for money; and
- may only be used:
- in the case of nonmonetary customer loyalty or reward point(s) - for the payment or part payment of, or in exchange for, goods or services, or both, provided by its issuer or any merchant specified by its issuer; or
- in the case of an ingame asset - for the payment of, or in exchange for, virtual objects or virtual services within an online game, or any similar thing within, which is part of or in relation to, an online game”.
Based on the definition provided above, it is likely that NFTs may fall within the scope of limited purpose digital payment tokens, which are exempted from the application of the PSA.
Characteristics & features of the NFTs: NFTs that are pegged to art works where ownership in those art works is being fractionalised and would constitute asset-backed tokens. Artists should consider what features the minted NFTs would have. If the minted NFTs are limited to dividing ownership in the art works, and is not intended to be used for investment purposes, it is unlikely to constitute as “Capital Markets Products” that fall within the ambit of the Securities and Futures Act (Cap.289) (“SFA”).
However, if the NFT is minted in a way that the original NFT issuer (i.e. artist) would receive a share of proceeds each time their NFTs are sold, with the artist retaining the ability to sell such a right to future proceeds on a secondary market, the NFTs may fall within the ambit of the SFA.
Intellectual Property: Artists should also consider how the fractionalising of ownership in the artwork affects their ownership and enforcement of copyright rights. It is good practice to read the terms and conditions of NFT minting platforms to ascertain if there are any pre-determined limitations on copyright rights.