NFT: Are buyers being fooled by sellers like Yuga Labs?

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According to a study by Galaxy, NFT followers don’t actually have the virtual item they think they are buying. And for good reason, “many channels, including the largest, Yuga Labs, seem [les] have misled”.

After the spectacular breakthrough of NFTs in 2021, it is time for questions as this market is currently going through a difficult period, in the wake of the collapse of cryptocurrencies. While many stars (Jimmy Fallon, Stephen Curry, Shaquille O’Neal, Neymar, Omar Sy, Snoop Dogg, etc.) did not hesitate to put their hands in their wallets to buy NFTs, the craze for these digital assets gave way to great doubts. One in particular attacks buyers: are they the real owners of their NFTs?

According to a study by Galaxy, an investment company specializing in blockchain technologies, the answer is rather negative. In reality, the buyers would not hold much, victims of a still very vague legal framework, which authorizes not to grant real property rights. “Many publishers, including the largest, Yuga Labs, seem to have misled NFT buyers about the intellectual property rights of the content they sell”, the study reveals. Therefore, “the vast majority of NFTs do not transfer intellectual property rights over their underlying content”says Galaxy.

NFT publishers are the real owners

This worrying observation tarnishes the image of an industry in which companies seeking to profit rely on NFTs to be unique and genuine digital objects. But if the person doesn’t really have a piece of digital art, he has no interest in spending thousands of dollars to pay for it. Who can imagine paying for a Van Gogh painting that can be returned to his living room by the seller at any time? No one…

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Yet this is what is currently happening in the NFT market. “Most people talk about buying NFTs like buying jpegs, the image files you see online in avatars and marketplaces like OpenSea. But the reality is that the publishers of the NFT collections retain full ownership of these imagessummarizes the Galaxy study. The mere fact that an NFT refers to a particular image does not give the owner of that NFT any rights to the image, any more than creating a Mona Lisa NFT gives the creator any rights to the work.”

Opaque contracts to mislead buyers

Galaxy thus recalls the actual detention conditions of an NFT. Beyond an NFT pointing to a specific image, “more is needed, and that something is a legal agreement between the owner of the image – the so-called copyright holder – and the NFT holder specifying the rights that the latter has in relation to the image. To the extent that an NFT purchaser has rights to the image associated with his NFT, these do not arise from his ownership of the token, but from the terms and conditions contained in the license issued by the NFT project that the purchase and sale of the token ‘use of the image by the holder of the NFT’explains the research.

In the case of Yuga Labs, the industry giant behind the famous collection Bored Ape Yacht Club valued at over $4 billion, the company and buyer are bound by a simple licensing agreement, while the contracts ensure that the holder of the NFT “fully owned” The image. A lie that makes it impossible for the acquirer to use their NFT as they see fit, for example to create derivatives.

With a purchase on marketplaces such as OpenSea, the picture is even more complex. After all, the buyer is then no longer only bound by a contract with the NFT issuer; he also contracts with the platform that sold him the virtual object, which has its own terms of use. Enough to mislead NFT holders some more… So, to regain their trust, NFT players will have to follow an exercise in transparency and get out of this artistic vagueness, under pain of being seen as scammers.

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