OpenSea users head to arbitration; Tokenized security examined

Getting your Trinity Audio player ready...

Two months after instituting legal action against non-fungible token (NFT) platform OpenSea for allegedly offering unregistered securities, aggrieved users are heading toward arbitration following the platform’s tough stance.

In a court document, OpenSea confirmed that it will remain firm on its decision to compel the users to explore arbitration before proceeding to court. The firm is basing its decision on its terms of use, which it says the plaintiffs had previously agreed to.

A quick glance at the terms of use reveals that the dispute between the firm and users will be arbitrated in JAMS, a full-service alternative dispute resolution (ADR) provider in the United States. Federal court judge Cecilia Altonaga greenlighted OpenSea to file the motion compelling the users to seek arbitration before pursuing their claims in court.

In September, Itai Bfronshtein and Anthony Shnayderman filed a calss-action lawsuit against Ozone Networks, the company behind OpenSea and its affiliated business. The plaintiffs argued that OpenSea had illegally offered securities on its platforms that eventually became worthless.

Following OpenSea’s filing, the aggrieved users filed for the voluntary dismissal of their suit against the digital asset marketplace, opting to explore ADR in accordance with the terms of the service agreement.

In an interview, the duo’s lawyer disclosed that “they had no choice but to dismiss the pending case” in favor of a robust solution for all parties. Adam Moskowitz, legal representative for the aggrieved users, noted that OpenSea will have to raise the stakes and run a tight ship in offering NFTs to the public.

“We still think OpenSea could help, especially in supervising and monitoring NFTs traded on their own exchange, for which they directly profit,” said Moskowitz. “We will certainly continue to investigate how we can best help those victims of failed NFTs and other crypto products.”

The lawsuit against OpenSea gathered significant steam following the disclosure of a Wells Notice from the securities watchdog hinting at a full-scale investigation from regulatory authorities.

OpenSea holds ground

OpenSea dismissed the lawsuit as a baseless attempt to inflame the reports of the Well Notice, noting that it has not offered unregistered securities to its users.

“Conjuring from thin air a purported class-action lawsuit based on our disclosure of an SEC Wells notice won’t make the allegations in the complaint true,” said a company spokesperson.

In its latest court filing, the company noted that it “has a number of defenses available” and will explore its options following the conclusion of the ADR process. The plaintiffs reserve the right to institute legal action following the ADR process with parties given the option to appeal the arbitration decision via an appellate panel before heading to the courts.

Exploring the concept of tokenized security

Meanwhile, as tokenized securities continue to gain mainstream acceptance, Web3 investment firm DWF Labs has partnered with the University of California, Los Angeles (UCLA) to educate the public on the new offering.

The market maker will play a prominent role in a new book by UCLA faculty member Alex Nascimento that will dive deeper into the concept of tokenized security. Early sources indicate that DWF Labs will be the focal point of a case study in the book, which is expected to be titled “The STO Financial Revolution.”

Security token offerings and the tokenization of real-world assets (RWA) have soared to new heights in recent years, as indicated by a spike in their market capitalization. While regulation in the emerging sector is playing catchup with innovation, DWF Labs said it is willing to pick up the gauntlet to educate key players on the workings of tokenization.

“We are excited to share our experience and help shape the industry’s future by influencing how institutions understand and engage with digital assets and STOs,” said DWF Managing Partner Andrei Grachev.

Given the lack of information about this, Grachev noted that traditional financial institutions may adopt a hard stance against Security Token Offerings (STOs). He added that the negative stories around blockchain technology and its complexity may make financial players hesitant to explore STOs and other digital assets.

Higher institutions of learning are leading the push for providing education on these assets, with Grachev confirming plans to increase the scale of its partnerships. While the executive did not namecheck the institutions on the firm’s radar, he noted a spike in demand for insights into blockchain by financial institutions.

“There is a need to equip future professionals with the skills and knowledge to navigate this blockchain-enabled economy,” said Grachev. “Institutions are responding to the demand from students and industries alike for advanced insights into blockchain’s potential to increase transparency and inclusivity within financial systems.”

Soaring market valuation

Several research firms are predicting the RWA sector to balloon in size with ambitious estimates from Standard Chartered pegging the growth to $30 trillion by 2030. More conservative estimates from McKinsey and Company predict the tokenization market could reach $2 trillion, while Roland Berger anticipates a $10 trillion market cap by the decade’s end.

A common denominator in the research papers is that stablecoins will continue to lead the curve for tokenized RWA in the coming years. A Chainlink report opines that since the total market for RWA stands at $867 trillion, tokenizing up to 1% will send the market value to unseen highs.

Watch: Streaming with NFTs changes idea of ownership