How to sell Cardano NFTs legally
The Cardano NFT landscape is in legal peril. Individuals selling NFTs are likely to follow a model that entails sending an exact amount of ADA to a specific address. Once a payment is received, an NFT is minted and returned to the paying address. From a development standpoint, this solution is simple, effective, and has a good user experience. Our company, Rektangular Studios, liked this model so much that we had the same model worked into our initial design for the Novellia SDK, a toolkit for developers to talk to the Novellia Gaming Platform (launching on May 17th).
Unfortunately, this model is not legal. Most countries in the developing world have individual regulations for KYC (know your customer) and AML (anti-money laundering). Companies and individuals that work with cryptocurrencies are required to get certified as a money service business in order to safely operate. They are required to provide the identification of buyers and sellers who are included in government watchlists, as well as alerting when payment thresholds have been reached ($1,000–10K transfers within 24 hrs). In Canada, companies report to FINTRAC. In the USA, companies report to FinCEN and require licenses for all 50 states. Within the EU, companies are required to follow 6AMLD regulations, along with additional reporting to EU authorities. Today, all major governments in the world have AML and KYC regulations in place that demand compliance in order to legally sell within these countries.
Complying with all of these regulations can be a legal nightmare for small companies and individuals that are looking to sell their NFTs. Is there an easier way to adhere to these regulations when selling NFTs on a global scale?
One solution would be to partner with a bank that would have custodial access to the seller’s wallet and would be regulated in association with the financial ownership of assets. However, this is a relatively new field in the USA, with very few banks offering these services. Due to the scarcity of banks providing these services, it is not recommended to go down this route.
Another solution would be to partner with a financial institution to delegate payment processing. AdaPay and NowPayments are companies that handle incoming money and take a fee, since they follow KYC and AML laws. This means individual companies do not have to familiarize themselves with these regulations and their work is secured.
When smart contracts come out, peer-to-peer trading protocols could be used. In most countries, it is not required to know the customer if you are not handling the money. Swap contracts initiate buying and selling between peers, eliminating the need for KYC implementation. However, this would be considered a legal grey area. In the long run, companies running these services should not take any profits from trades using their protocol. There have been discussions of regulations that will require peer-to-peer protocols to follow KYC and AML regulations.
The simplest solution for individuals looking to sell their NFTs would be to utilize a platform that is already compliant with international law.
Starting on May 17th, our company will be launching the Novella marketplace, with an initial presale to test out the systems, followed by a movement towards total decentralization. We will be opening up applications to include select artists and game makers and allow them to sell their own tokens on our platform. We will also perform testing for our decentralized autonomous organization (DAO), allowing users to vote on platform changes such as listings, so they can curate the visibility of artists and game developers. A regulated platform would be the ideal solution for individuals looking to sell their NFTs while remaining compliant.
We are not lawyers here at Rektangular Studios. We are engineers who are passionate about the mission of the Cardano Ecosystem, and we want to bring value to its stakeholders. We want what is best for the end-user, and we want everyone to do things in a transparent and legal manner so projects are here for the long run. If you are planning to launch your own NFT system or project, you should consider looking into the legal implications. If you are an artist, it is recommended to use a payment processor or an NFT platform. Likewise, if you are an engineer designing your own tools and systems, it would be advisable to consult with an attorney. It would be in the best interest of the entire Cardano community that projects remain sustainable and continue to thrive in the future. Lawsuits may seem like a distant concern, but they are likely to arrive when least expected. We do not want to see the Cardano ecosystem get harmed as many cryptocurrency projects have in the past. So let’s work together to implement strategic and compliant methods that will remain in the ecosystem for many years.
