What comes as a surprise to many, the ruling by U.S. District Judge Victor Marrero to label Flow’s NBA Top Shot NFTs as securities were based on the fact that Dapper Labs maintained a private blockchain & constrained the trade of NFTs to only the Flow blockchain. This meant that buyers were required to rely on Dapper Labs’ organizational efforts to create and maintain the value of these NFTs which are commonly referred to as “Moments”.
NBA Top Shot NFTs Deemed Securities
The court decided that Top Shot’s Moments were indeed securities since they met the requirements to be considered an investment contract. This was due to the fact that the value of Moments was dependent on the management efforts of Dapper Labs, the business that was responsible for creating and managing NBA Top Shot.
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The action was filed in the United States District Court for the Northern District of California as investors claimed that the NFTs should be considered securities in accordance with the federal legislation of the United States. Additionally, Dapper Labs had broken securities regulations by neglecting to register the NFTs with the Securities and Exchange Commission (SEC). This decision was made in the midst of a larger discussion on whether or not various digital assets should be classified as securities.
Judge Victor Marreo was quoted as saying:
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Flow Price On Freefall?
According to Dapper Labs, as of February 2021, NBA Top Shot was responsible for more than 230 million dollars in revenues for the sale of NFTs. The judge’s decision emphasizes the need for businesses that provide digital collectibles, NFT games and enables NFT trading to carefully assess whether their products may be governed by securities regulations and to take the necessary precautions to be in compliance.
However, lawyers for Dapper Labs argued that:
As a direct consequence of this turn of events, the value of Flow’s native token plummeted by a significant 15% and is currently exchanging hands at roughly $1.20. The price of Flow reached its all-time high of $46.16 on April 5, 2021, however, it has since dropped approximately 98% and currently has a market capitalization of $1.2 billion.
Experts and observers in the cryptocurrency market anticipate additional suffering for the altcoin due to the possibility that courts would find other NFTs issued by Dapper are securities as well. This could very well turn out to be the majority of NFT collections produced by the company in violation of security regulations, which would have a further negative impact on the price of the token.
