With growing consumer, asset manager, investor, and entrepreneur interest in digital assets, we have compiled this checklist to monetize items with unique artistic characteristics through non-fungible tokens (NFTs).
Key Factors When Building an NFT Marketplace:
Company Formation:
To protect your business and increase its creditworthiness before attracting external financing, creating a separate legal entity is recommended.
Code of Conduct:
Due to the prevalence of user-generated content and transactions on NFT marketplaces, many of them include additional legal limitations in the form of codes of conduct to regulate interactions on the platform.
Smart Contracts:
A unique digital creation must be individually identifiable with the possibility of transferring ownership within a smart contract.
Creators should anticipate the trading economy: the cost of initial and secondary sales, royalties, transaction costs, and other features of the secondary market so that trading can occur with automatic distribution of funds to the relevant parties.
Platform User Agreement:
Essential documents, such as a User Agreement, regulating the relationship between the NFT marketplace operator and clients, as well as between buyers and sellers of NFTs presented on the platform, are mandatory for NFT marketplaces.
Terms of Sale:
Sellers or creators who list their NFTs on an NFT marketplace may want to impose additional terms of sale on buyers of their NFTs, especially if the platform’s terms of service do not sufficiently address the risks for the seller or creator.
Intellectual Property Protection:
It is crucial to verify the intellectual property rights of each participant at every stage of each NFT transaction. Be sure to distribute the intellectual property rights between the creators/artists, buyers/collectors, and other parties involved.
It is crucial to verify the intellectual property rights of each participant at every stage of each NFT transaction. Be sure to distribute the intellectual property rights between the creators/artists, buyers/collectors, and other parties involved.
Securities Law Compliance:
To ensure that your newly created token does not possess the characteristics of a security, it is essential to develop features that demonstrate a distinction between your NFT and what governments seek to regulate.
For instance, proceeds from initial and secondary sales should not be used to create other NFTs, platforms, or marketplaces. As currency is fungible, this requires careful planning.
Payments:
If payments are processed on behalf of counterparties, the party handling the money may be a “money service business” whose activities are regulated by the appropriate state registration rules.
Consumer Protection:
Most major jurisdictions have laws to protect consumers. Suppose the NFT marketplace does not adequately inform its customers about what they are buying and the associated risks. In that case, the FTC can accuse it of deceptive or unfair advertising, leading to substantial fines.
Data Privacy:
Transparency regarding your data collection and use is crucial. Many jurisdictions require platforms to disclose their data practices in a privacy policy. Penalties for privacy violations can be significant.
Marketing and Advertising:
The marketplace should not advertise NFTs linked to illegal activities.
It is necessary to comply with regulations and laws regarding advertising in the chosen jurisdiction.
Conclusion:
Creating an NFT marketplace is a multifaceted process that requires meticulous attention to legal aspects. The checklist presented in this article will help you navigate the essential considerations.
Remember that legal regulations surrounding NFT marketplaces are still developing, so it is vital to keep up-to-date with legislation and respond promptly to changes.
