Amazon’s Web3 Foray Will Be a Compliance Nightmare


News about Amazon, the world’s largest retailer, launching a Web3 initiative emerged last week. It is not clear how this project will look once it materializes; it might involve an NFT marketplace, gaming, or something else.

Either, the uncertainty and complexity of regulations for doing this will kill the project before it begins, or the retailer can “make the market” on this and bring the Web3 economy into the mainstream.

Is Amazon Flying Blind?

Major blue chip companies have avoided Web3 due to legal uncertainties. Payment companies such as Visa and Mastercard have put efforts to integrate stablecoins into their networks, many crypto nodes use AWS, Amazon’s cloud service, and big TradFi and tech firms are regular investors in the crypto economy.

However, this does not mean that the firms are stakeholders in the Web3 economy, adopting the protocols of decentralized ownership. Lack of clarity and the uncertainty of regulations has brought interference. The new efforts by Amazon can be transformational if it succeeds, meaning that regulatory issues may be addressed.

Are NFTs Securities?

One of the major issues that may prevent Amazon from launching initiatives is whether NFTs are securities.

This issue has been debated by many legal minds and is currently before the court in the case “Friel v. Dapper Labs.” Jeeun Friel, who is the plaintiff, argues that Dapper Labs’ NBA: Top Shot NFTs are securities since the value of the NFTs increases with the success of the project. Dapper Labs is also the one behind the blockchain where the NFTs are stored and deducts a fee for every transaction.

The case between Friel and Dapper also involves theories about horizontal and vertical commonality. Horizontal commonality checks whether the value of each item (Moments in this case), is dependent or independent of each other. Vertical commonality analyzes the link between the value of the Moments and the success of Dapper.

“The proceeds of investors’ purchases in Moments are pooled together in the hands of Dapper Labs, which uses the money to stir up interest in the Marketplace for Moments and build out its Flow blockchain, further driving interest, traffic and money to the NBA Top Shot platform,” argues the Plaintiffs, stating that this represents horizontal commonality.

This is what Dapper said regarding vertical commonality:

“There is no vertical commonality because there is no link between the fortunes of each Moments collector and Dapper.” The plaintiffs argue that the success of Dapper depends on continued sales of these Moments in the secondary market, creating vertical commonality.

What about NFTs and Copyright?

NFTs and copyright has been a hot topic.

Unless explicitly stated, one doesn’t own the copyright after buying a piece of art.

Yuga Labs, the company behind famous NFT projects such as Bored Ape Yacht Club (BAYC) and CryptoPunks has been involved in many legal tussles over NFTs copyright. The company recently released full commercial rights to NFT holders for all their collections, including BAYC. However, the company still owns the IP for the apes.

Will Amazon Pull This Off?

All the above is not to say that Amazon is facing an impossible task.

Amazon has all the necessary legal resources and compliance teams to come up with a Web3 version that doesn’t conflict with the law, although there is limited legal guidance about the same.

Having established a strong base in the Web2 world, Amazon is better placed to create momentum for the NFT market which is currently at the bottom.

Amazon’s venture into the NFT space will also legitimize it in the eyes of many, an important step in making NFTs institutional-grade assets.

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By darnell
January 30, 2023