Dapper Labs, the company behind NBA Top Shot, has entered into a $4 million settlement agreement to resolve a class-action lawsuit that alleged the firm sold unregistered securities through its NBA Top Shot Moments NFTs. This settlement marks a significant moment in the NFT industry, reinforcing that these digital assets are not considered securities.
Background of the Lawsuit
In 2021, a group of investors, led by Jeeun Friel, filed a lawsuit against Dapper Labs, claiming that the NBA Top Shot NFTs were sold as unregistered securities. The investors argued that the value of these NFTs was tied to the popularity of the project, akin to traditional securities. Dapper Labs denied these claims, asserting that the NFTs were more similar to trading cards like baseball or Pokémon cards.
CEO's Statement on the Settlement
Roham Gharegozlou, CEO of Dapper Labs, emphasized that the legal discovery process supported their stance that NBA Top Shot NFTs are not securities. In a statement posted on X (formerly Twitter) on June 4, Gharegozlou explained, “The case’s legal discovery found the NFTs were on a decentralized public network, which meant they are not securities in the same way trading cards are not securities.”
Details of the Settlement Agreement
The settlement agreement, filed on June 3 in the New York District Court, outlines Dapper Labs' commitment to pay the $4 million settlement amount. In return, the plaintiffs agreed to cease claiming that the NFTs were securities. Additionally, Dapper Labs has pledged to make business changes to ensure the Flow blockchain is sufficiently decentralized. This includes relinquishing control over any remaining Flow tokens to the Flow Foundation and implementing a mandatory annual staff training program on federal securities laws.
Judge's Previous Ruling and Future Implications
The settlement still requires approval from District Judge Victor Marrero. Earlier, in February 2023, Judge Marrero had rejected Dapper Labs' attempt to dismiss the lawsuit, suggesting that the NFTs could be considered securities under the Howey test, a legal framework for determining securities. However, the recent settlement and Dapper Labs' compliance with decentralization measures strengthen the argument that these digital assets should not be classified as securities.
Changes in Marketplace Trading
One of the points of contention in the lawsuit was the restriction on trading NBA Top Shot NFTs on other marketplaces. The settlement clarifies that Dapper Labs lifted these restrictions in March 2022, allowing other marketplaces to trade the tokens freely. This move aims to increase the liquidity and accessibility of NBA Top Shot NFTs, further supporting their classification as non-securities.
Dapper Labs' $4 million settlement represents a pivotal moment for the NFT industry, offering clarity on the classification of digital assets. By affirming that NBA Top Shot NFTs are not securities, Dapper Labs sets a precedent for future NFT projects, paving the way for broader adoption and innovation within the space.
FAQ's
What was the lawsuit against Dapper Labs about?
The lawsuit claimed that Dapper Labs sold NBA Top Shot NFTs as unregistered securities, alleging that their value was tied to the popularity of the project.
How much did Dapper Labs settle for?
Are NBA Top Shot NFTs considered securities?
No, the settlement and legal findings support that NBA Top Shot NFTs are not considered securities.
What changes is Dapper Labs making to ensure decentralization?
Can NBA Top Shot NFTs be traded on other marketplaces?
Yes, Dapper Labs lifted restrictions on trading NBA Top Shot NFTs on other marketplaces in March 2022.
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