Gaming tokens in trouble as the SEC serves CyberKongz with a Wells Notice

The US Securities and Exchange Commission (SEC) is investigating a security claim again, this time regarding another gaming token. To that end, Cyberkongz has notified its users that the SEC has issued it a Wells Notice for not registering the blockchain game as a security.

The NFT gaming project Cyberkongz told its users that the project has been suffering in silence for the last two years, ever since they first received contact from the SEC. 

The project said in an X post, “Throughout the entire process, they have showcased a complete lack of understanding of blockchain technologies that has resulted in unjust accusations and information inaccuracies.”

Cyberkongz has, however, declared that it is a relief to have these restrictions abolished and to have this information made public.

According to the project, CyberKongz is deeply rooted in gaming. It provides users with features such as randomly generated 2D and 3D avatar NFTs used in “play & kollect” games on the Ronin blockchain.

Why the SEC issued the Wells notice 

CyberKongz stated, “SEC’s division of enforcement have approached us with very concerning rhetoric that you can not have a token (ERC-20) in tandem with a blockchain game without registering it as a security.”

In addition, the project claimed that the SEC has also demonstrated a strange interpretation of smart contracts. Cyberkongz also revealed that one of their major concerns is around the “sale” of Genesis Kongz in April 2021, which was a contract migration.

The project asserted, “If they cannot distinguish between a primary sale and a contract migration, what hope do we currently have for a clear regulatory pathway going forward?”

The issue of entity assets being called securities has become a common problem in the digital assets landscape. XRP has been on this with the SEC for a period of time. It is one of the most anticipated issues for the new administration by the crypto industry. 

According to on-chain data, the project’s floor price remains steady at 8.2 ETH ($32,800), up 14.4% over 24 hours. 

Market expectations after the Wells Notice

A Wells notice is a formal letter that the SEC issues to notify an entity that the regulator has completed a preliminary investigation and is considering enforcement action.

CyberKongz will be granted a 30-day period to submit a response.

So far, in 2024, the US Securities and Exchange Commission has taken legal action against six digital asset companies. Also, it has sent Wells letters to an additional six people, informing them that they are under investigation.

Three lawsuits and Wells notifications allege unregistered securities offerings. The remaining charges filed against crypto companies are related to securities fraud.

In 2023, the SEC sued 31 crypto firms, accusing them of violating US securities law. Some of the most high-profile cases involve actions taken against crypto exchanges such as Beaxy, Bittrex, Binance, Coinbase, and Kraken.

The current administration, led by President Biden, has fined entities millions and billions of dollars. The SEC also imprisoned the founder of Binance. The SEC is known to antagonize entities when they appear in its crosshairs.

However, Cyberkongz asserted, “It has become increasingly apparent that the current administration is trying to force their anti-crypto agenda at the last minute. We hope that the new administration puts an end to this unjustness on our industry, but until then we will fight for NFT projects on all chains.”

Are gaming tokens in trouble?

It seems as though the SEC is after gaming tokens. Recently, the commission also issued a Wells Notice to Web3 gaming firm, Immutable.

Immutable said, “With this action, the SEC is continuing to indiscriminately assert that tokens are securities. While not specified in the notice, we believe its claims are targeting the listing and private sales of IMX in 2021.”

Immutable, however, asserted that the IMX token is not a security despite the SEC’s indiscriminate claim that tokens throughout the industry are securities.

One of the founders of Axie Infinity, Jihoz Zirlin, has expressed his confidence in the CyberKongz team, stating that he is confident that the new administration will end the persecution of “our industry.”

Insane for the SEC to target a project like @CyberKongz . Always wanted the best for the space. Always strived for innovation. Always tried to lift others.

Taking this fight is one of the most important moments for NFT projects. We will fight against the unjustness and for a… https://t.co/KeWfUZms6I pic.twitter.com/Bws6hVzotU

— coco.kongz.eth | Ronin mAXIE (@Coco__Bear) December 16, 2024

There’s good news on the horizon, though. The new pro-crypto administration will soon assume office, and there is a probability that the securities debate will be settled once and for all for the whole industry.

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