The Thai Securities and Exchange Commission (SEC) Board has imposed new digital asset market regulations that prohibit digital asset exchanges from trading non-fungible tokens (NFTs). Meme-like tokens such as Dogecoin and Fan-tokens are also be banned from trading on digital asset exchanges. Thailand’s new rules will cover everything from sports collectibles to NFTs representing rights in a physical luxury item such as a watch or even real estate.
According to the Bangkok Post, the regulation came into place amid reports claiming business group Jay Mart was to launch the first NFTs aiming to promote the ecosystem around their very own digital coin JFin.
The SEC did not provide any specific reason for the ban. Some potential grounds are the recurring scams relating to digital assets. As these assets became more popular, there have been more opportunities for scammers to successfully sell different NFTs or fan-tokens than the ones advertised.
Another potential reason is the unrealistic valuation related to these digital assets. While the NFT hype is past its peak, some of these assets, which represent nothing more than a file and an abstract ownership right to something, are still being sold for thousands of dollars. The purchasers are the ones willingly making the decision to invest in the tokens, but the SEC might be trying to protect investors from a potentially extreme devaluation of the assets.
Similarly, the ban might be related to these assets weak link to ownership rights, some of which are issued by people who don’t own the intellectual property related to the digital asset. In the U.S., DC Comics warned its artists that they don’t own the rights to original cartoon drawings after a Wonder Woman NFT sold for $1.85 million. If the issuer doesn’t own the intellectual property of the issued NFT, the asset is almost meaningless. Again, people may willingly invest in this abstract ownership, but the regulator might be preventing them from investing in something that, in their eyes, has no intrinsic value.
It is worth noting that the SEC is not banning the issuance of NFTs. It is only banning the trading of these digital assets. The reason is most likely that digital asset exchanges are easier to control.
Despite justifiable reasons for the ban, it raises some issues. These digital assets, especially NFTs, are a digital form of collectibles, where much of their value comes from the ability to trade them. There are plenty of digital collectibles traded on other venues such as eBay that are not NFTs. Arguably an NFT, provided there’s the ability to validate the issuer, could be a superior representation of the collectible because it should prove the origin and that it’s not counterfeit.
In addition, NFTs go beyond digital art and collectibles. They are becoming a new product line for companies to sell. Luxury companies specifically are looking into other uses of the technology. Gucci and other fashion brands are exploring NFT-based 3D-clothing as a way to broaden their audience within games. And blockchain alliance Arianne created digital passports for luxury goods that are NFTs, including for Richemont’s watch brand Vacheron Constantin.
While not specifically stated, the regulation may also apply to stablecoins issued by a digital exchange as it included a ban on coins issued by a digital exchange.