Federal Judge Rules NBA Top Shot NFTs as Securities

The court case involving NBA Top Shot ‘Moments’ can continue, and it’s all because of FLOW. Because FLOW is a private blockchain provided by Dapper Labs, the trade was limited to only the FLOW blockchain. As a result, the value of Moments relied on Dapper Labs’s managerial efforts to create and maintain value. Let’s take a look at what this means for NBA Top Shot, and the wider NFT space.

The NBA Top Shot Moments Ruling

The case involves a lawsuit brought by investors who purchased NBA Top Shot Moments from Dapper Labs. These investors claim that under US federal law, the NFTs constitute ‘securities’. The court found that NBA Top Shot Moments NFTs constituted an investment contract and therefore were securities. Furthermore, according to the court, Dapper Labs had devised a plan in which they guaranteed investor profits. The profits were ‘guaranteed’ by selling NFT packs at low prices and advertising the significant profits made by others through the sale of NFTs on Dapper Labs’s proprietary Marketplace. The court further determined that investors depended on Dapper Labs’s managerial efforts to develop the Marketplace and maintain the FLOW blockchain since the NFTs would not exist without these efforts.

How Did Dapper Labs React?

Dapper Labs argued that the NBA Top Shot NFTs were not securities, as the buyers controlled their own portfolios. So, the buyers made the decision over which NFTs to buy and trade, and when. Still, the court rejected this argument, as Dapper Labs have control over the private blockchain through restrictions on where the holders could sell their NFTs. Therefore, buyers did not have the ability to trade freely.

What Does This Mean for NFTs?

This is a significant ruling for the NFT space. As private blockchains become more popular for businesses, this ruling highlights the potential risks. Private blockchains pose securities risks for fundraising and issuing tokens, and companies offering NFTs need to consider whether their offerings may be subject to securities laws. Finally, the ruling highlights the need to comply with securities laws when offering tokens on private blockchains.

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