The NBA Top Shot NFT collection has become one of the most popular trading card-themed NFT collections today, with each unique NFT depicting iconic moments from basketball history. The digital trading cards hit the market in late 2021 and quickly became a sensation. However, the future of the industry may be in question after a US District Court Judge recently allowed a lawsuit against Top Shot’s creator, Dapper Labs, to move forward.
The lawsuit was brought by a buyer of the NFTs who alleged that Dapper Labs’ failure to register them with the Securities and Exchange Commission (SEC) had harmed her and other buyers. Judge Victor Marrero denied Dapper Labs’ request to dismiss the suit, and stated that the Howey Test, which is often used to determine whether something is a security, indicates that the NBA Top Shot NFTs could indeed be securities.
In response, Dapper Labs posted a comment on Twitter saying that the court had described the decision as a “close call” and that it was “not a final ruling on the case’s merits.” The company went on to state that “courts have repeatedly held that consumer goods – including art and collectibles like basketball cards – are not “securities” under federal law. We’re confident the same holds true for Moments and other collectibles, digital or otherwise.”
The Top Shot NFTs are issued on the Flow blockchain, which brands itself as an “eco-friendly,” open and permissionless network with more than 11,000 developers building on it. However, Judge Marrero referred to Flow as a “private” network, suggesting that the blockchain is highly centralized, and assets issued on it are likely to be categorized as securities. Dapper Labs rejects this notion, stating on its website that less than one-third of the network’s consensus nodes are “run by a single entity.”
It remains to be seen whether the NBA Top Shot NFTs will be categorized as securities. If they are, the entire NFT industry could be affected, as the SEC would likely take a closer look at the other NFTs being issued on the market. This could mean that NFT creators would need to register their tokens with the SEC and comply with federal regulations.
In the meantime, it is important to note that the decision to allow the lawsuit to move forward is not a final ruling on the case’s merits. Dapper Labs is confident that the same legal precedent that applies to consumer goods, such as art and collectibles, will also apply to digital collectibles. It will be interesting to see how the case plays out and what the implications are for the NFT industry as a whole.