Dapper Labs’ NFT was declared by a US court to be eligible for securities

A US court allowed Dapper Labs’ NFT case to continue because it found sufficient arguments to prove that the NFT met the conditions for being considered a security.

Dapper Labs’ NFT was found by a US court to be eligible for securities. Photo: Dapper Labs

The NFT “NBA Top Shot Moments” collection of Dapper Labs, the entity behind blockchain Flow, has been found by a US federal court to meet the conditions to be considered a security, so the case can continue. class action against this organization.

NBA Top Shot Moments is an NFT collection of notable basketball moments, created by Dapper Labs in partnership with the NBA.

The court said it applied the Howey Test, a test commonly used by US officials to assess whether an asset is sufficient to constitute an investment-security contract relationship between the parties, to determine Dapper Labs NFT service.

According to the Howey Test, an asset is considered an investment contract if the following conditions are met:

  1. As a monetary investment;
  2. Investment activities are made in a joint enterprise;
  3. There is an expectation of return on investment;
  4. That profit comes from the efforts of the organization selling the investment or a third party.

It can be seen that Dapper Labs’ NFT sale initially satisfied conditions 1 and 2. Next, the court argued that the company would still maintain a certain degree of control over NFT NBA Top Shot Moments after the sale. open for sale, citing that NFTs can only be traded through a marketplace that exists on the company-maintained Flow blockchain, Finally, the company has social media posts implying that NFTs will add value in the future, thereby satisfying conditions 3 and 4.

The court stated:

While Twitter posts don’t directly refer to the word ‘profit’, the use of the emojis ‘rocket’, ‘stock graph’, and ‘pocket of money’ can mean only one thing: financial return on investment.”

The court also pointed out the connection of the maintenance of value for NFT with the FLOW token of the blockchain Flow:

“The plaintiff also pointed out that without the FLOW token, the FLOW blockchain would not be able to process any transactions. Flow’s Proof-of-Stake mechanism provides a financial incentive for its participants to verify transactions. In this sense, FLOW also contributes to the value of NFT through network consensus on the ownership and cost of each transaction.”

Even so, the court ruling has not brought any charges against Dapper Labs, instead simply confirming that the lawsuit against the company has all the facts necessary to be heard in Court. Southern District of New York, where the lawsuit was filed in 2021.

In addition, the court emphasized that this ruling is specific to the Dapper Labs case, not to all NFT assets.

“Not all NFTs issued or offered for sale by other companies will be considered securities, each case must be considered separately.”

The court also dismissed a complaint filed by Dapper Labs CEO Roham Gharegozlou, asking the court to dismiss a lawsuit against his company alleging that it offered NBA Top Shot Moments for sale without registering with the watchdog and disclosing the information. necessary information for investors, in accordance with securities management regulations and investment contracts.

U.S. authorities have recently been increasing regulatory moves targeting the cryptocurrency sector after a 2022 full of crises and disruptions in the market, taking a toll on the average investor. The US Securities and Exchange Commission (SEC) has repeatedly accused individuals/organizations of wrongdoing in recent years, as well as declaring many crypto assets to be securities – including stablecoin BUSD. branded exchange Binance.

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