WAX.io: The Leading Web3 Gaming Platform
In our previous discussions, you highlighted your role in founding Worldwide Asset eXchange (WAX), recognized as the first decentralized marketplace for trading virtual items in video games. Could you elaborate on WAX.io and its status as the premier web3 gaming platform? WAX was specifically designed to cater to the needs of blockchain gamers and NFT enthusiasts. Initially, we utilized the Ethereum blockchain; however, due to its high transaction fees and slow processing times, we opted to create our own WAX blockchain and wallet. Today, the WAX blockchain boasts the largest NFT ecosystem, featuring over 250 million NFT assets and more than 30,000 decentralized applications (dApps) dedicated to NFT projects. The platform facilitates upwards of 23 million transactions daily for its extensive user base of 15 million, establishing itself as ultra-fast, secure, and environmentally friendly. As a leader in the NFT space, WAX’s eco-conscious design is validated by Climate Care, underscoring our commitment to reducing our ecological impact. To celebrate Earth Day, we introduced the Earthen WAX Walker NFT drop, pledging to plant a tree for each NFT claimed, thereby merging our dedication to digital collectibles with meaningful environmental initiatives.
Concerns Over NFT Valuation
A recent analysis from the crypto research firm dappGambl revealed that a staggering 95% of NFTs hold little to no value. This report indicates that following the massive surge of interest in NFTs between 2021 and 2022, approximately 79% of NFT collections remain unsold. Notably, the once-coveted Bored Ape Yacht Club NFTs have seen their values plummet by nearly 90% from their peak. Despite the downturn in the NFT market at the close of 2021, I asserted that NFTs are here to stay. What are your thoughts on the future trajectory of NFTs? According to Zion Market Research, the NFT market was valued at $36.12 billion in 2023 and is anticipated to expand to $217.07 billion by 2032, representing a compound annual growth rate of about 22.05% from 2024 to 2032. Currently, the global NFT market capitalization stands at $68.68 billion, reflecting a slight increase of 1.12% over the past day. I foresee that the primary growth will stem from utility NFTs, collectible NFTs, and those associated with web3 gaming.
The Evolution of Art NFTs
In 2021, art NFTs emerged as a significant disruption within the art sector, enabling artists to mint, showcase, and auction their work, while investors engaged in buying, selling, and trading these digital assets. Nicole Sales Giles, the VP and director of digital art sales at Christie’s, remarked that Christie’s perceives digital art as merely another category within contemporary art collecting. The web3 art community is collaboratively creating something remarkable, and I believe this period will be recognized as the foundational moment for artists, builders, curators, and collectors alike. What is your perspective on the future of art NFTs? The global art market experienced a 4% decline last year, totaling $65 billion, with a handful of significant sales contributing to this figure. Art NFTs are expected to be managed primarily by major art institutions like Christie’s, Sotheby’s, and Phillips. At WAX, we concentrate on collectible and gaming NFTs with substantial trading activity. We are optimistic that our Earthen WAX Walker NFT drop will generate considerable interest among collectors, enabling us to contribute to tree planting efforts.
Tax Implications for Collectible NFTs
Collectible NFTs are currently subjected to a tax rate of 28%, which exceeds the standard capital gains tax rates. What are your thoughts regarding this elevated tax rate for collectible NFTs? Do you believe it might deter investment in NFT collectibles? The global collectibles market, valued at over $360 billion in 2020, is expected to grow at a rate of around 4% from 2022 to 2028. The 28% tax rate suggests that the Internal Revenue Service (IRS) anticipates significant growth in the collectible NFT sector and aims to tax it at a higher rate than capital gains.
IRS Developments on NFT Reporting
Recently, the IRS unveiled a draft for the 1099-DA form. Jonathan Cutler, a senior manager at Deloitte’s Washington National Tax team, noted that under the proposed digital asset reporting regulations from August 2023, NFTs would be considered reportable assets if they represent value recorded on a secure distributed ledger or similar technology. In April, the IRS introduced the draft form that will likely be used for reporting NFTs and other digital assets. It’s crucial to note that this draft is preliminary and may undergo changes based on public feedback. Until the IRS and Treasury review these comments, it remains challenging to ascertain the final definition of “digital asset” for reporting purposes. What are your thoughts on the draft 1099-DA form related to NFTs? Should the draft be finalized as is, NFT markets will need to issue 1099-DA forms, especially given the higher tax rate for collectible NFTs.
Innovative Cannabis NFT Initiative
A groundbreaking NFT project aims to transition cannabis sales from underground markets into the NFT realm. Cannabis entrepreneur Maximillian White, often dubbed the ‘Elon Musk of cannabis,’ announced a partnership with UK rapper Fredo shortly after his release from prison in Dubai. This collaboration is set to launch the first-ever Dr. Green NFTs available on a dedicated marketplace, enabling holders of these Ethereum-based NFTs to legally sell recreational cannabis globally. The global cannabis market is projected to reach approximately $33 billion by the end of 2024 and exceed $69 billion by 2029, with a compounded annual growth rate of 15.4%. What are your thoughts on this pioneering cannabis NFT initiative? No comment.
SEC’s Increasing Focus on NFTs
The NFT landscape is likely to witness intensified scrutiny from the SEC in light of recent enforcement actions. Last year, the SEC categorized two NFT projects as securities. In August 2023, the agency charged Impact Theory, LLC, a media and entertainment firm based in Los Angeles, for conducting an unregistered offering of crypto asset securities via NFTs, raising around $30 million from numerous investors while likening itself to the next Disney Company. Shortly thereafter, in September 2023, the SEC reached a settlement with Stoner Cats 2, LLC (SC2), determining that its NFT offering, which raised $8 million, constituted a security and was therefore an unregistered offering. What is your take on the SEC’s enforcement actions in the NFT sector? I was not aware of the SEC’s settlements with the NFT projects, including the next Disney Company and the animated series Stoner Cats created by Mila Kunis and Ashton Kutcher. Nevertheless, it seems that the documentation for these NFT offerings was inadequately prepared by their legal teams. The factors that could lead to an NFT being classified as a security include fractional ownership, promises of passive income, or governance participation, such as staking. Consequently, the SEC concluded that these NFTs were marketed as investment contracts, qualifying them as securities. This classification indicates that these projects did not adhere to federal securities laws by offering and selling NFTs without proper registration. Given the complexities surrounding securities compliance, it is crucial for NFT projects to consider their features and offering documents thoroughly before launching.
The Future of Ethereum and Its Impact on NFTs
Most existing NFT projects across various sectors, including art, gaming, sports, metaverses, and cannabis, are built on the Ethereum blockchain. In April, the SEC issued a Wells notice to the Ethereum-based company Consensys, indicating potential regulatory actions concerning violations of federal securities laws through its MetaMask Staking and other services. Following Ethereum’s transition from a proof-of-work to a proof-of-stake consensus mechanism in September 2022, the SEC has expressed intentions to regulate ETH as a security. This stance is echoed by the New York State Attorney General’s Office (NYAG), which, ahead of the SEC, filed a lawsuit against the crypto trading platform KuCoin for allegedly failing to register as a securities and commodities broker-dealer and misrepresenting itself as an exchange, particularly asserting that ETH traded on its platform is a security. BlackRock CEO Larry Fink has stated he is unconcerned about the potential classification of Ethereum’s ETH as a security. What are your thoughts on the possibility of ETH being classified as a security? How might this affect the NFT market? No comment.
