NBA Top Shot NFTs Deemed Securities by U.S. Federal Judge

Dapper Labs’ lawsuit is far from a slam dunk to crypto lawyers, but the judge allowed the plaintiffs to proceed.

A basketball fan covering his mouth in shock that all NBA Top Shot NFTs might be classified as securities.
  • Dapper Labs lawsuit from 2021 comes back to haunt NBA Top Shot NFTs.
  • Federal Judge says the NFT platform “satisfies the requirements” of securities.
  • The lawsuit argues that Flow blockchain is private and thus qualifies as securities.

Dapper Labs is in the hot seat as the United States District Court Judge Victor Marrero rejected the motion from the Web3 company to throw out a pending class-action lawsuit. The case filed by Jeeun Friel from Virginia back in May 2021 blamed Dapper Labs and NBA Top Shot NFT marketplace for “preventing the holders from cashing out in time.” It was deemed “lame” by experienced crypto traders, but the tables have turned.

Judge Victor Marrero thinks the idea that NBA Top Shot NFTs are securities is “plausible” because the NFT marketplace is powered by Flow (FLOW) blockchain, which resembles a private network rather than a public blockchain like the blockchain of leading crypto asset Bitcoin (BTC).

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On the other hand, the representatives the most popular basketball memorabilia NFT marketplace strongly disagree with such an assertion. According to Dapper Labs, the blockchain has been in the community’s hands since mid-2021, as Flow (FLOW) marginally increased its decentralized pool of node validators.

Howey Test Regards NBA Top Shot NFTs as Securities

According to the plaintiff, Dapper Labs deliberately avoided registering the sports NFTs with the Securities and Exchange Commission (SEC). They had to close down the website temporarily when facing unexpectedly high demand back in 2021, thus preventing the NFT holders from selling their digital assets.

On top of that, United States District Court Judge Victor Marrero explained that “The Court’s conclusion that what Dapper Labs offered was an investment contract under Howey is narrow,” meaning that the same principles cannot be applied to other NFTs.

The Federal Judge based the decision to go further with the case on Roham Gharegozlou’s statements that digital cards can “gain value over time.” The lawsuit also emphasized that the intellectual property in this particular case also belongs to the co-founders of Dapper Labs and full control of the NBA Top Shot NFT marketplace.

On the Flipside:

  • NBA Top Shot NFT marketplace doesn’t promise returns on NFTs. At the same time, several crypto lawyers claim securities law is too vague to be used on non-fungible tokens, as it relies on opinion of what is defined as ‘investment.’

Why You Should Care:

NBA Top Shot by Dapper Labs is one of the most popular sports memorabilia projects. The outcome of this lawsuit is crucial for similar projects on the blockchain, as the digital sports memorabilia market is expected to reach $42 billion by 2032.

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This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Tadas Klimasevskis

Tadas Klimaševskis is a Lithuanian journalist at DailyCoin, specializing in covering the lighter side of the crypto industry such as memecoins and pop culture in the metaverse. He has experience as a music artist, English language teacher, and freelance writer, and uses his creative writing skills to summarize valuable information in his work. He is also a strong believer in the potential of blockchain and spends his free time listening to music, traveling, and watching basketball games.