Shrina Kurani considers herself a problem-solver above all else. The former Democratic candidate for California’s 41st congressional district describes herself as “an engineer, entrepreneur, and fact-based problem solver, not a politician.” That mindset is exactly what drove her to explore incorporating non-fungible tokens (NFTs) in her congressional campaign.
“The political world is just waking up to how we can engage the crypto community, and we’re excited to be at the forefront,” Kurani told InvestorPlace. This trend began with politicians such as New York City Mayor Eric Adams and Miami Mayor Francis Suarez embracing crypto as a means of spurring economic growth on the city level. But as Kurani illustrates, NFTs have proven a powerful tool for fundraising before candidates are even elected.
With the 2022 midterm elections approaching, fundraising season is heating up. In a high-stakes race, funding is of paramount importance. And for candidates like Kurani, who bring unique knowledge of the tech field, this has meant implementing NFTs and crypto as key aspects of their campaign financing plans.
The ranks of candidates using NFTs also includes Colorado Gov. Jared Polis, described by Axios as the “most high-profile” politician to explore NFT fundraising. Matt West, a Democratic congressional hopeful from Oregon’s 6th district recently launched a line of Ethereum-based crypto beaver NFTs. Former Silicon Valley executive Blake Masters has made them a part of his senate campaign in Arizona, which has the backing of Peter Thiel. And Dr. Scott Jensen, a Republican candidate for the Minnesota gubernatorial seat, has done the same.
More politicians have embraced crypto as it has gained prominence as a mainstream investment vehicle. But the use of NFTs in campaign fundraising is unique to this election cycle — and it raises questions about its future.
Some experts indicate that the unstable nature of NFTs as an investment vehicle can open the door to bigger problems that go beyond both campaigning and finance.
In an age in which lawn signs, junk mail and television ads are no longer sufficient for winning major elections, digital platforms have proved essential. This has been particularly true for candidates employing the grassroots method of running without corporate donors or super political action committees (PACs). As Kurani notes, fundraising isn’t simply about keeping a campaign powered. “You need to fundraise because it signals that you have the resources,” she told InvestorPlace. Political fundraisers face an ever-evolving need to both connect with voters and raise funds at the same time. NFTs provide the opportunity to do exactly that.
New Platforms Take Midterm Fundraising Beyond Junk Mail
One of the driving forces behind NFT’s rise as a campaign tool is Brian Forde, CEO and co-founder of campaign fundraising startup Numero. This fintech is at work launching electables.com, a platform for NFT fundraising. As Forde sees it, NFTs provide the perfect bridge between his clients and the donors they need to reach. “With NFTs, electables allow them to connect with other grassroots supporters and be recognized for their contribution,” he told InvestorPlace.
One of the unique benefits of NFTs is that they can be made personal to the issuer. Musicians have been drawn to NFTs because they allow fans to invest in artists they believe in. And as Forde has found, grassroots donors want the opportunity to invest directly in the politicians they are eager to back. “The technology behind NFTs is like a timestamp, proving a donor’s early support and impact that can be publicly displayed.” As he says, NFTs can prove that someone made a correct bet on a candidate at an early stage of their campaign.
Kurani knows well the importance of connecting with a voter base for fundraising purposes. But she also understands how tedious the process can be. “As a candidate, you’re expected to spend 30+ hours a week on the phone — not talking to voters, but cold-calling potential donors.” Her foray into NFTs has helped in that respect. As Kurani notes, “[my] NFT drop has a similar benefit as campaign merchandise, with the additional value of being able to engage more with our community.”
Fellow Democrat Matt West has uncovered another unique attribute of NFTs. “I really think it’s going to be a great way to fight back against dark money, DC elites and centralized power in a very unique way,” he told Axios, prior to the launch of his crypto beavers NFT collection on April 18. West was referring to the trend of special interest groups contributing to political campaigns.
In that statement, then, West highlights something important: the appeal of decentralized finance.
Democratizing the Democratic Process
The primary appeal of decentralized finance (DeFi) is that it can “eliminate the need for a central authority” that comes with traditional finance. Digital assets, such as crypto and NFTs, have provided investors with an opportunity to break away from centralized power, helping create what advocates such as Kurani see as a more democratic financial system. For the voters who believe in creating a more accessible financial system for investors, decentralized contributions benefit both them and their chosen candidates.
“With crypto, we can democratize access to financial services,” Kurani noted.
There are other benefits for candidates that embrace NFTs and crypto. Joe Fuld, founder of political consulting firm The Campaign Workshop sees opportunities for crypto-savvy politicians. “Among those donors that do understand and care about crypto, there is a novelty and affinity for candidates that also understand NFTs and crypto.”
For such donors, though, there is also a clear motive in the form of an investment angle. Would-be donors with an affinity for blockchain technology also know that their purchased NFTs can appreciate in value if that candidate’s career progresses. Campaign merchandise can become extremely valuable, depending on the candidate’s legacy. The original Kennedy for President posters issued by John F. Kennedy’s 1960 campaign are being sold for as much as $1,400 in 2022.
NFTs have the potential to generate return-on-investment (ROI) on the same scale, if not higher. For her campaign’s NFT drop, Kurani joined forces with a marketplace built on the Algorand blockchain. Her campaign released 230 NFTs, most of which showed images of her and reflected her technology background. 21 have sold so far. By contrast, Blake Masters, a Republican candidate for an Arizona senate seat sold 99 NFTs before the end of 2021. Master’s NFTs were based on the cover of his book Zero to One, co-authored with Thiel.
In sum, NFTs have presented a way for donors to contribute to their chosen candidates by effectively purchasing digital merchandise. As of now, there is nothing to bar buyers from making large-scale donations through NFTs purchases.
As noted, though, there are plenty of regulatory complications.
“Under current law, anonymous donors are able to give unlimited amounts of money to an organization in order to make independent expenditures, as long as that organization doesn’t have electioneering as its principal purpose.” However, potential donors can spend as much as they choose through NFT purchases, creating an avenue for underhanded campaign contributions. And while venues such as OpenSecrets provide detailed lists of who has contributed to what campaign and how much they have given, at least for now, there is less data publicly available regarding NFT buyers.
NFTs: A Pot of Gold or a Pot of Trouble?
This may make NFTs appealing to anyone fed up with the highly centralized financial system. But the lack of regulation may prove to be a double-edged sword. Members of the European Union parliament recently advocated to subject NFT trading platforms to anti-money laundering (AML) laws. And while these lawmakers may preside over an international market, some experts closer to home share these sentiments.
Justin Daniels, an attorney who specializes in the legal intersections of business and technology, is concerned about the potential for NFTs to facilitate underhanded financial maneuvers. As he told InvestorPlace, this includes their use in political campaign fundraising.
Daniels noted growing concerns regarding the use of NFTs as money-laundering vehicles. Experts such as crypto commentator Mr. Whale have tried to sound the alarm on NFTs being used to secure ill-gotten gains. “I think the lack of regulation makes it a very tricky proposition for politicians to use NFTs to collect campaign contributions,” Daniels said.
AML is not Daniels’ only concern when it comes to fundraising through NFTs, though. He also highlights the importance of issuers knowing who they are selling to, referencing the need to Know Your Customer (KYC), a set of standards used by financial institutions to verify their customers. Ryan Wilkinson, head of product at Blockasset, has argued that KYCs are “needed in the NFT space to clean up its wild west reputation.” That traces back to the lack of regulation that may have made NFTs more appealing to donors seeking new ways to support political candidates. But as Daniels emphasizes, it is also where there is opportunity for candidates to get into trouble by selling to buyers they shouldn’t be.
“You need to think very carefully about including some kind of KYC or AML for the purchasers of potential campaign contributions,” Daniels said.
Why? Politicians run the risk of NFTs providing a convenient avenue for foreign interests. One example he cites is individuals on the Office of Foreign Assets Control (OFAC) list. As he sees it, someone placed on that list could theoretically purchase an NFT from a political candidate. “Imagine if you were to submit an NFT [to a marketplace] and somebody [from North Korea], were to buy one, that would be a problem under campaign finance laws,” Daniels told InvestorPlace.
Daniels is correct that such an NFT purchase could lead to problems for the issuing candidate. According to the United States Federal Election Commission (FEC) “federal law prohibits contributions donations, expenditures (including independent expenditures) and disbursements solicited, directed, received or made directly or indirectly by or from foreign nationals in connection with any federal, state or local election.”
Joseph Weinberg, co-founder of Shyft Network, a blockchain-based data sharing ecosystem, espoused a similar sentiment. In an early 2022 op-ed, he advocated for creating NFT technology utilizing an on-chain KYC rules engine. Like Daniels, he sees a lack of KYC standards as posing problems for NFT fundraising.
“It is probably important from a political perspective to know that you are not being funded by foreign governments,” he wrote. “In situations like that, it is important that everyone knows at some level or some degree where the money comes from.”
Weinberg added, though, that he thinks politicians who are doing nothing wrong should have no problem with more in-depth KYC policies. “When it comes to the political side, I don’t see why anyone would be against KYC. Especially, given this type of use of an NFT is for such an important reason. It’s for funding what might be the next president or prime minister of a country.”
What Comes Next
Will NFTs continue to grow as a staple of campaign fundraising? As of now, it’s not clear.
As the National Law Review notes, “NFTs are currently not specifically regulated in the U.S.” While Daniels acknowledges that the U.S. Securities and Exchange Commission (SEC) hasn’t discussed NFTs yet, he expects that to change. He also sees the rapid growth of NFTs within the past year as a primary reason for regulatory agencies to start looking more closely into them. “I think they will take interest in it this year, because I see OpenSea has become valued at over $13 billion.”
Weinberg also notes that further NFT regulation is possible. “I think that any time there’s a question around national security, there is always a good argument for regulation.” But he also sees NFTs as being a difficult asset class to regulate. “The regulators have a very big, complex problem on their hands because all NFTs are different.”
For this election cycle at least, NFTs will continue to play a pivotal role in how politicians help finance their campaigns. The future value of the NFTs purchased by supporters of politicians such as Kurani, West and Polis will depend on the future success of the politicians who issued them. It is likely that once NFTs are regulated, they will become harder to use in campaign financing. But as Weinberg noted, that will be a difficult path — and may not happen too soon.
In the meantime, NFTs provide both a convenient way for candidates to raise funds and for would-be supporters to contribute to their campaign by purchasing a potentially valuable asset.
Investors should watch carefully as the election season heats up, as this trend may shift national focus back to NFTs.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.