Web marketing for NFTs and Utility Tokens

Introduction

Anyone who frequents the world of the so-called Web3 knows that the success of a project - whether it involves NFTs or some cryptocurrency - depends heavily on the team's ability to reach, engage and grow the community through marketing activities.

Marketing then plays a particularly important role in growing the value of NFT tokens and collections both at launch and in secondary markets (in the case of non-fungible tokens, for example, by influencing the so-called floor price of the collection).

The publicity channels used for blockchain projects are mostly digital and include different types of communications: from white papers to posts on social networks (Twitter and Discord primarily) and statements by industry influencers on online platforms.

This ability of promotion activities to influence the volume of exchange (and thus the value) of tokens has attracted the attention of legislators, with the result that a specific space has been dedicated to the topic within Regulation (EU) 1114/2023 (the "MiCA Regulation").

The white paper in the MiCA regulation

The most important marketing document for a cryptocurrency-based project is undoubtedly the white paper. Developed in the period of so-called Initial Coin Offerings or ICOs, this traditionally consisted of promotional documents that provided potential investors with explanations of the cryptocurrency being offered and the objectives behind a project.

In the context of MiCA Regulation, the publication of a white paper has become a necessary requirement for the proper issuance of a cryptocurrency asset. Specifically, the issuer of a token other than stablecoin or e-money token has a duty to publish the white paper and notify the supervisory authority (in the case of Italy, it will be Consob), unless one or more of the exemptions provided in the regulation itself applies.

The content the white paper must have is determined by the regulation itself and includes, among others, information about the entity (e.g., issuer, offeror, etc.), the project, the token, the underlying technology, the rights and obligations associated with the token, and the related risks. This is supplemented by a series of disclaimers, the content of which is determined in the regulatory provisions. 

The goal of the regulation is to impose an obligation on operators to clearly and transparently disclose all relevant information - which therefore affects consumers' willingness to purchase the token - and all the risks consumers face through the purchase (e.g., the risk of loss of value of the token).

Given the minimum white paper content elements specified in the MiCA Regulation, it becomes clear that traditional white papers published at ICOs are documents of a totally different nature: in the regulations they are intended as consumer protection documents, traditionally they have been developed as project promotion documents.

Web marketing communications in the MiCA regulations

The MiCA Regulations contain fairly precise provisions on how marketing communications must be carried out.

With respect to tokens other than asset-backed tokens and e-money tokens, it is required that marketing communications (i) be identifiable as such, (ii) be consistent with the white paper, (iii) specify that a white paper has been published, (iv) contain a specific notice that the token has not been authorized by any competent authority, and (v) the information contained therein be correct, clear, and not misleading.

Compliance of advertising communications with the above regulations is a task entrusted to the national authorities (i.e., Consob in Italy), which will also have the power to require that it be notified of all marketing communications made in connection with the token.

At this point it is therefore necessary to distinguish between the "traditional" white paper and the white paper provided under Article 6 of the MiCA Regulation. While the latter consists of a document designed to protect consumers, which must have a content indicated by the regulations, the classic white papers typical of ICOs (where published) will have to be treated as marketing communications under Article 7 of the MiCA Regulation, as confirmed by ESMA in the second consultation package (see ESMA, Consultation Paper, Technical Standards specifying certain requirements of Markets in Crypto Assets Regulation - second consultation paper, para. 220). The traditional white paper may then submit free content as long as it complies with the above regulatory guidance.

Web marketing communications, tokens and financial products

It is certainly worth mentioning, although it would deserve to be a topic of separate in-depth study, that Italian jurisprudence has given particular weight to the methods of marketing and commercialization of tokens for the purposes of qualifying them as "financial products," a category of investment products not known to all European legal systems.

In this regard, we refer to the Supreme Court's ruling No. 26807 of September 25, 2020, where it recognized the crime of financial abuse in the case of the sale of bitcoin "advertised as a real investment proposal" (emphasis added).

On the other hand, this approach seems at odds with what ESMA indicated in a public consultation package on the application of the MiCA Regulation. Indeed, the Financial Markets Authority has argued that the mere presence of the financial component is not in itself sufficient reason to qualify a token as a "transferable security" (see ESMA, Consultation Paper, On the draft Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments, paras. 25, 26).

The issue is of undoubted interest because bringing a token under financial regulation (e.g., MiFID II) precludes the application of MiCA Regulation. Until a greater level of clarity and harmonization is achieved between the new regulation on crypto-assets and financial regulation (as differently declined in different member states), it is important for token issuers to be even more careful about how their products are advertised.

Influencer marketing

The promotion of a product, even in Web 3, can come through collaboration in different capacities with one or more public figures.

On this aspect, it is important to note that MiCA Regulation defines "placing of cryptoassets" as "the marketing of cryptoassets to buyers, on behalf of or for the account of the offeror or a related party" (emphasis added). The definition adopted by the MiCA Regulation (and thus the related regulatory approach) seems more expansive than the concept of "placement" adopted in the sense of the MiFID II regulation, basically consisting of the distribution of financial instruments by agreement with the issuer.

This interpretation seems to be confirmed by the European Commission itself, which in a communication dated February 20, 2023, expressly brought back (potentially) to the service of "crypto-asset placement" the conduct of a celebrity who provides promotion, endorsement or recommendation activities regarding a crypto-asset. endorsement o raccomandazione in merito ad una cripto-attività.

This clarification by the authorities is particularly important because, as crypto asset placement falls under the list of services for crypto assets, it is a regulated service and for which authorization as a service provider for crypto assets is required under MiCA Regulation.

Provisions applicable to the sale of NFTs

The regulations discussed apply to tokens that do not fall into the categories of security tokens, asset referenced tokens (e.g., stablecoins) or e-momey tokens. For the latter three categories there are even stricter rules than allowed in the case of offering utility tokens.

NFTs, on the other hand, are theoretically excluded from the regulations of the MiCA Regulations, and thus are not subject to the obligations and limitations related to white papers and marketing communications.

However, the MiCA Regulation outlines rather flexible boundaries of the definition of non-fungible token, with the consequence that some products typically (and technologically) falling under the category of NFTs could still be considered crypto-assets subject to the new regulation (an example could be fractional NFTs or large collections of NFTs having the same utilities).

The offering of these products could then be subject to the provisions of the crypto-asset regulations and require, in addition to the publication of a white paper that complies with the above, that marketing communications be carried out in accordance with the regulations and under the supervision of supervisors. 

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