Are NBA Top Shot NFTs Securities? The Jury Is Out

Are NBA Top Shot NFTs… securities? A US federal court is evaluating exactly that, courtesy of a new class action lawsuit.

The ruling likely will only be a testament for Dapper Labs and their NBA Top Shot product, but there very well could be lessons to learn from wherever things land.

In the interim, an early denial to Dapper Labs’ motion to dismiss the case suggests that there very well could be legs to the discussion.

Top Shot’s Case Considerations

Filings from the district court Southern District of New York circulating on the internet Wednesday revealed the denial of the motion to dismiss, with a number of considerations. Most importantly, this is far from a definitive ruling on any matter, but it does essentially verify that the court sees the claim as having legitimacy.

Within the document, the court finds a difficult decision, describing the scenario as “a close call and the Court’s decision is narrow.” The definition of a ‘security’ in the US is typically pointed to the Howey Test, a set of common standards that consider profit expectations and investment perspective.

Within this ruling, the judge evaluates Howey Test criteria, and generally found the criteria to not sit in favor of Dapper Labs.

Dapper Labs' native Flow token (FLOW) was cited in the court's decision when considering the ecosystem surround Top Shot. | Source: FLOW-USD on TradingView.com

What It Means For NFTs

In the short-term, Dapper Labs is given a three-week respond period.

Despite a likely challenging road ahead for Dapper Labs, that doesn’t mean whatever eventual ruling reached in this case is bound to reach the depths of all NFTs. Dapper’s Top Shot product is particularly insulated; Top Shot NFTs are not trading outside of the Dapper Labs-owned marketplace, and are not actively traded to wallets.

Flow’s ecosystem has stayed relatively insulated, leading it to carve out a niche in crypto as an NFT-focused chain that best serves as a whitelabeling solution. This is somewhat rare in crypto, particularly to the degree of adoption that Flow has seen – which is arguably a credit to Dapper Labs business development team.

Nonetheless, we can expect the implications of this eventual ruling to probably be applicable to Dapper’s NFT products more so than NFTs broadly – because of how rare it is to see a more closed NFT ecosystem with this degree of success.

In the interim, expect it to be a long haul and slow trudge through the mud for this case, as this recent filing comes roughly six months after Dapper Labs filed their motion to dismiss.