NFT companies that didn’t follow a little-known law from 1997 may have to give full refunds to European customers for past purchases.
Following the release of Porsche’s first NFT collection earlier this week, most commentary focused on the project’s insensitive pricing and dismal sales.
A few days later, a small mandatory checkbox included in the project’s minting process stirred up a new controversy with far-reaching consequences for the NFT community.
All hopefuls In order to mint their NFTs this week, Porsche NFT owners were required to agree to Terms of Service that waived a so-called right of withdrawal. Although the majority of customers had likely never heard of such a right, the German automaker deemed it important enough to include.
What is the right of withdrawal?
The right of withdrawal, established by an obscure European Union law from 1997, mandates that anyone engaged in “distance selling” must offer customers 14 days to return a product for a full refund. This 14-day period may be waived for digital goods, but only if customers are informed.
Why Porsche would want customers to give up that right makes perfect sense. If the NFT collection’s floor price fell below its original price of.911 ETH on secondary markets, which it did earlier this week, European buyers could ask Porsche to refund the full amount they paid for the collection at first. But because of that handy checkbox, Porsche NFT holders can’t choose this option.
Some of the other NFT collections may not have been as careful. Some people are looking into whether other NFT companies didn’t force their customers to waive their right to a refund in the same way that Porsche did. Importantly, EU and UK laws say that if a company doesn’t tell a customer about their right to withdraw, that customer has a full year to get a full refund, not just two weeks.
Yuga Labs, the $4 billion firm behind the popular NFT collection Bored Ape Yacht Club and the metaverse platform Otherside, may be one of these companies that didn’t tell European customers about their initial right to a 14-day refund window. For example, neither EU nor UK law is mentioned in the company’s terms for Otherdeeds, which are contracts for virtual land plots on Otherside.
One of these customers, Paul Price from London, asked for a refund on an Otherdeed he bought last May. Yuga turned down the request, saying that Otherdeed’s policy didn’t include any guarantees or refunds.
Yuga has a reason to keep this policy in place. When they were first made, Otherdeeds cost 305 APE, which was about $5,800 at the time. In the middle of crypto winter, the floor price of the collection is now less than half of that, at 1.57 ETH, or $2,469, according to the secondary NFT market OpenSea.
Price has since referred the matter to the legal department of Yuga. He stated that he is in contact with numerous lawyers interested in escalating the matter.
Yuga Labs refused to comment on the situation.
Something caught my eye on the Porsche NFT mint page that might just change the entire game for everyone.
— Paul | Top Dog Studios (@darkp0rt) January 25, 2023
And no one is talking about it…pic.twitter.com/Vd4Mzidvhk
According to UK law, if a firm such as Yuga continues to refuse refunds to customers after being found in violation of the nation’s distance selling regulations, it could be subject to a “unlimited” fine or even criminal liability.
“People clearly don’t understand this and are cocking it up,” John Salmon, a London-based attorney specializing in digital assets said.
Salmon, who has previously advised European regulators on the drafting of crypto policies, believes that American companies frequently overlook the legal realities of other markets, even when those markets represent a significant part of the company’s customer base.
“This is the problem with [America-focused companies],” Salmon said. “There is a world outside the U.S., right?”
What will happen next?
The episode shows the growing pains of the crypto industry, which became very popular in a short amount of time and gave rise to hundreds of multinational companies with hundreds of billions of dollars worth of new assets almost overnight. During the last bull market, when these companies grew and moved quickly, policies and practices were often made up on the spot.
As these companies enter their second consecutive year of unprecedented financial strain, it appears that the rules and regulations of traditional finance and commerce are beginning to catch up.
