Web3 Gaming at Risk as CyberKongz Receives SEC Wells Notice

CyberKongz shared that it plans to contest the SEC’s enforcement. Crypto exchange Binance is facing a trademark infringement lawsuit from Mark Longo over the unauthorized use of his ”Peanut the Squirrel” mascot for the PNUT meme coin. Additionally, Coinbase is battling in a $1 billion lawsuit that was filed by BiT Global Digital. The exchange is accused of anticompetitive behavior for delisting Wrapped Bitcoin (wBTC) to favor its own Coinbase BTC (cbBTC).

SEC Targets CyberKongz

The Web3 gaming and NFT industry may face a major setback after CyberKongz, a well known NFT platform, received a Wells notice from the United States Securities and Exchange Commission (SEC). In a Dec. 16 post on X, CyberKongz shared that the SEC’s rhetoric surrounding the issuance of ERC-20 tokens in connection with blockchain games without registration as securities could have far-reaching consequences for the gaming sector. The platform plans to contest the SEC's stance.

A Wells notice is a formal notification from the SEC indicating that it is considering enforcement action after an investigation. CyberKongz has been given 30 days to respond to the notice. 

The SEC’s concerns seem to relate to the “sale” of Genesis Kongz NFTs in April of 2021. However, CyberKongz clarified that this event was a contract migration and not a primary sale. The NFT platform also pointed out that it has primarily been bootstrapped, with no capital raises and only a modest treasury, while enduring this scrutiny for more than two years.

CyberKongz suggested that the SEC’s move is very likely a last-minute attempt by the Biden administration to slow down the growth of the Web3 industry. The team is hopeful for a change under a future administration but pledged to continue fighting for NFT projects across all chains. The platform even received support from Axie Infinity co-founder Jihoz Zirlin, who is optimistic that the “persecution” of Web3 innovators will come to an end.

CyberKongz floor price (Source: CoinGecko)

Despite the Wells notice, the CyberKongz NFT market remained resilient. CoinGecko data reveals that the floor price of CyberKongz NFTs actually rose by 19+% in the past 24 hours to reach an average of 8.59 ETH, which is approximately $26,900.

This incident is the second high-profile Wells notice served to an NFT and gaming firm in recent months after the SEC’s notice to Australian-based Immutable on Nov. 1. 

Binance Faces Trademark Clash Over PNUT Meme Coin

Crypto exchanges are also facing some legal troubles, but not necessarily from the SEC. Mark Longo, the creator of Peanut the Squirrel, issued a cease-and-desist letter to crypto exchange Binance, accusing it of trademark infringement over its promotion of the PNUT-themed meme coin. 

Longo claims that Binance used his “Peanut the Squirrel” trademark and mascot likeness without his permission to market the PNUT cryptocurrency. He says this infringes on intellectual property he used for educational and animal welfare purposes since 2017. The letter demands Binance immediately stop using the PNUT name and mascot, and also warned of potential legal penalties of up to $150,000 per infringement under the United States Copyright Act.

Longo’s legal team shared that Binance’s use of the terms “PEANUT THE SQUIRREL” and “PNUT,” along with a copyrighted image of the squirrel mascot, creates consumer confusion by implying a connection or endorsement Longo never actually authorized. The complaint argues that Binance’s actions are an unlawful reproduction and display of protected intellectual property. 

Legal experts believe his case could set an important precedent for intellectual property rights in the meme coin market, where viral branding and decentralized assets often blur legal boundaries.

The cease-and-desist letter was issued after the rising popularity of PNUT-themed meme coins, which gained a lot of traction after a viral event in October. The surge of Peanut-branded tokens led to two related meme coins ranking in Dexscreener’s top 10 tokens by trading volume. The PNUT token itself reached a market capitalization of $2.25 billion on Nov. 14. This rapid rise drew the attention from major exchanges, including Coinbase and Kraken, which are reportedly considering listing PNUT.

PNUT market cap over the past year (Source: CoinMarketCap)

Longo gave Binance until Dec. 31 to comply with his demands and confirm in writing that all infringing activities will stop. Should Binance fail to meet these requirements, Longo may pursue legal action in a U.S. court. The outcome of this dispute could also have serious broader implications for intellectual property enforcement in the crypto and meme coin sectors.

Coinbase Faces $1 Billion Lawsuit

Coinbase is facing a $1 billion lawsuit that was filed by BiT Global Digital. The lawsuit accuses the crypto exchange of anticompetitive behavior over its decision to delist Wrapped Bitcoin (wBTC) in November. BiT Global alleges that Coinbase delisted wBTC to promote its own competing Bitcoin-based token, Coinbase BTC (cbBTC), and claims the move constitutes monopolization of the wrapped Bitcoin market under the Sherman Act.

The lawsuit was filed on Nov. 19 in the United States District Court for the Northern District of California by law firm Kneupper & Covey, and it accuses Coinbase of predatory practices, including issuing false statements about wBTC’s compliance to undermine its market position. BiT Global is convinced that the delisting was strategically aimed at steering market dominance toward cbBTC.

Coinbase’s chief legal officer, Paul Grewal, responded to the accusations and defended the company’s listing and delisting practices. Grewal explained that Coinbase is very committed to maintaining very high listing standards and stated that assets that do not meet those standards will be delisted. Others meeting its market requirements would be added. 

However, Grewal’s defense drew some backlash from the crypto community, including Tron founder Justin Sun. Sun questioned Coinbase’s transparency by pointing to previous comments that were made by Coinbase CEO Brian Armstrong, where Armstrong claimed the exchange is “asset agnostic” and committed to offering consumer choice in the crypto economy.

The delisting of wBTC has sparked a lot of controversy overall, particularly as it happened soon after Coinbase’s announcement of cbBTC, which is positioned to boost Bitcoin-native decentralized finance (BTCFi). Wrapped Bitcoin (wBTC) is a tokenized version of Bitcoin that runs on the Ethereum blockchain. Each wBTC is pegged 1:1 to Bitcoin, which means that its value mirrors that of BTC. It allows Bitcoin holders to participate in Ethereum-based decentralized finance (DeFi) applications, like lending, borrowing, and trading, without needing to sell their Bitcoin. This is achieved by ”wrapping” Bitcoin into an ERC-20 token, which makes it compatible with Ethereum's ecosystem.

Critics argue that Coinbase’s actions completely contradict its earlier statements and are a conflict of interest. BiT Global’s complaint also pointed out that while wBTC was delisted, Coinbase still continued onboarding meme coins. This raised some serious questions about its consistency when it comes to actually enforcing listing standards.