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Atty. Padilla Says Do Not Promote It Falsely, as Investments, as Financial Service
“Isang matibay o magandang paraan para maiwasan talaga ‘yun (NFTs to be considered as security) is ‘wag muna i-market as an investment, focus doon sa quality nung artwork, sa quality ng product. I-highlight niyo ‘yung value niya for consumption at kung saan pwedeng gamitin. I-highlight natin ‘yung cultural value tsaka ‘yung aesthetic value nung artwork, hindi ‘yung pwedeng kumita ‘yung bumili.”
[“A good way to prevent our NFTs from being considered as security, is not to market it as an investment; just focus instead on the artwork’s quality. Highlight its value for consumption and where it can be used. Highlight also the cultural value and the aesthetic value of the artwork, not the promotion where the buyer will gain profit from it.”]
This is the clarification of Atty. Rafael Padilla, a Commercial Lawyer specializing in Fintech and Crypto, when asked about the things that should be avoided when marketing NFT Projects during a Twitter Space hosted by BitPinas last March 25, 2022.
Read more NFT and Law Articles:
- What is the Current State of NFT-related Laws in the Philippines?
- Are NFT Art and Collectibles Considered Security?
- Should Filipino NFT Projects Just Register Abroad?
- Are Project Owners and Influencers Responsible for an NFT Rug Pull?
- Are NFT Game Assets Considered Investments or Security?
- NFT Royalty and IP Guide | NFT Law 101
What to Avoid When Marketing NFT Projects?
Do Not Promote NFTs as an Investment
“’Wag nating i-promote as an investment ‘yung ating mga NFTs para lang maiwasan na natin ‘yung problems. Kung iiwasan na nating i-market ‘yung NFTs as an investment, hindi na magiging issue ngayon ‘yung jurisdiction ng SEC.”
[“Do not promote our NFTs as an investment to avoid having problems. If we can avoid marketing our NFTs as an investment, then the jurisdiction of the SEC will not be an issue.”]
The jurisdiction of the Securities and Exchange Commission (SEC) that Padilla was saying is about the idea that when NFT arts or collectibles are considered as securities because of some instances, then the SEC has a jurisdiction in that product.
“Kasi ako, naniniwala ako na labas naman ng regulatory perimeter ng SEC ang NFTs, pero dahil may mga instances, pwedeng maging security pa rin ang NFT.”
[“I believe that NFTs are outside the regulatory perimeter of the SEC, but because of some instances, some NFTs can be a security.”]
[When are NFT arts and collectibles considered a security? Read here.]
Do Not Promote NFTs as a Financial Service
The lawyer’s second point on what to avoid when marketing an NFT is promoting it as a financial service.
According to Padilla, one of the examples of promoting NFTs as financial service is when an NFT can be used for payments, which he stressed that he has not seen anything like this so far.
However, he also gave an example where blockchain game Axie Infinity’s in-game token, Smooth Love Potion (SLPs) are accepted as payment or in exchange for something in the market.
“Ang nakita pa lang natin, in relation to Axie Infinity, mayroong mga merchants na nag-accept ng SLP (as payment), kaya naging issue ngayon for BSP – kung nag-o-operate ba ng payment system si Axie Infinity or si Sky Mavis.”
[“What we have seen, in relation to Axie Infinity, is some merchants are accepting SLP as payment, that becomes an issue for BSP – if Axie Infinity or Sky Mavis is operating a payment system.”]
Padilla clarified that the Bangko Sentral ng Pilipinas (BSP) has a jurisdiction to regulate any payment system that is available in the market.
However, he insisted that it is not the Axie Infinity nor the Sky Mavis that is operating the payment system.
“Pero para lang maiwasan ‘yung mga issues na ‘yun, ‘wag na natin i-promote ito (to the buyers) na: ‘pwede mong gamitin for payments ito, pwede mong gamitin for remittance.’”
[“So, to avoid issues like this, do not promote it to the buyers like: “you can use it for payments and remittances.”]
In addition, the commercial lawyer stressed that according to BSP Circular No. 1108, series of 2021, or the Guidelines for Virtual Asset Service Providers (VASP), in-game tokens are not considered as Virtual Assets, because it only contemplates fungible, digital assets.
“So, non-fungible virtual assets, of course, NFTs, ay outside ng Virtual Asset Service Provider Guidelines and therefore it is outside the scope of BSP regulation.”
[“So, non-fungible virtual assets, like NFTs, are outside the VASP Guidelines and therefore, it is outside the scope of BSP regulation.”]
Do Not Promote It Falsely
The third point of Padilla on what to avoid when marketing an NFT is having a misleading advertisement.
“I-guarantee na hindi misleading ‘yung mga promotions at advertising nila. In relation sa Department of Trade and Industry, as early as 2008, mayroon nang E-Consumer Protection Guidelines at mayroong strict restriction doon or prohibition pagdating sa mga false advertising.”
(You should guarantee that your promotions and advertisements are not misleading. In relation to the Department of Trade and Industry (DTI), as early as 2008, there is already the E-Consumer Protection Guidelines and there is a strict restriction or prohibition when it comes to false advertising.)
[What are the Laws and Regulations that regulate the use cases of NFT? Read here.]
The lawyer clarified that false advertising is based on how an artist is marketing his or her NFT, and on how the artist is showing it to the community or to the consumers.
“I guess, ang importanteng Rule of Thumb diyan, siguro, para maiwasan mo ‘yung false advertising is we stick to the truth when we advertise.”
[“I guess, the important rule of thumb there to avoid false advertising is to stick to the truth when we advertise.”]
Are NFT holders liable if the project is tagged as an investment?
“In ordinary circumstances, kung wala tayong control doon sa like ibang tao na nagma-market, hindi tayo magiging liable for that.”
[“In ordinary circumstances, if we have no control over the people that are marketing this NFT, we are not liable for that.”]
[What are the laws and regulations in the country that regulate different use cases of NFTs? Read here.]
Padilla reiterated that the objective is to prevent the NFTs to be an issue to the SEC, and marketing NFTs can only be an issue if it will be marketed as an investment.
“Kung tayo, as a founder of the company or startup of a project, at hindi naman natin ginagawa ‘yun, that’s a good start.”
[“If we are a founder of the company or a startup of a project, and we are not marketing it as an investment, that is a good start.”]
However, the lawyer raised up a scenario where the members of the community are the ones that market your NFT as an investment.
“Ang defense natin diyan ngayon, importante dapat na ma-establish natin na mayron tayong policy. Nagsisimula ‘yan sa terms na sinasabi natin na hindi natin hinahayaan na ang product natin ay mai-market at maibenta as an investment at ang community natin ay hindi natin ie-encourage na maibenta siya as an investment.”
[“Our defense is, it is important to establish our policy. It will start in our policy’s terms that should stress that we should not let them market our product as an investment and that we do not encourage our community to sell our products as investment.”]
He clarified that discouraging the act that markets an NFT as an investment is a must.
Padilla also added that owners or NFT creators can disqualify members in their whitelist that will not follow this policy.
“Hindi Naman tayo liable sa action ng third parties except na lang kapag tayo mismo ang mag-promote o ‘di naman, we are negligent and we’re doing nothing to address ‘yung ginagawa ng mga third parties who are marketing ‘yung mga NFT na binebenta natin, ‘yung mga products na binebenta, natin as an investment product.”
[“We are not liable to the actions of the third parties except if we are the ones that promote our products as investment. Meanwhile, we are liable if we are negligent and we are doing nothing to address the actions of the third parties who are marketing our NFTs as investment products.”]
Lastly, Padilla stressed that being alert on what is happening around is a good thing.
“Keyword doon is vigilance. We should be vigilant. We should police our ranks,” he concluded.
This article is published on BitPinas: What to Avoid When Marketing NFT Projects?
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.