• Judge Victor Marrero has ruled in a case against Dapper Labs that NBA Top Shot NFTs are ‚plausibly‘ securities, according to the Howey Test.
• The Howey Test is a Supreme Court ruling used to determine whether a transaction constitutes an investment contract, and it has 4 elements which must be met.
• Dapper Labs argued that the NFTs offered on its platform do not constitute securities, but the judge’s ruling suggests otherwise.
NBA Top Shot NFTs Are Likely Securities
A United States District Court Judge Victor Marrero has ruled in a case against Dapper Labs that NBA Top Shot Non-Fungible Tokens (NFTs) are likely securities according to the Howey Test. The Howey Test is a Supreme Court Ruling determined whether a transaction constitutes an investment contract or not and it requires four elements for it to be considered as such.
The Howey Test
The U.S Supreme Court established the test in the case SEC v. WJ Howey Co back in 1946 and it requires four elements for a transaction to be identified as an ‘investment contract’:
1. There is an investment of money;
2. The investment is in a common enterprise;
3. There is an expectation of profits from the investment;
4. The expected profits come from the efforts of third parties or promoters.
Dapper Labs‘ Argument
Dapper Labs argued that their platform does not constitute securities but Judge Marrero’s ruling suggests otherwise as he highlighted Dapper’s control over NBA Top Shots platform and also the underlying intellectual property owned by NBA and National Basketball Players Association (NBPA). According to this statement, networks which power Top Shots appear more private than public which contradicts with what Dapper labs claimed earlier about Flow blockchain being open and permissionless network that progressively decentralize its node operators .
What Does This Mean?
This ruling gives credibility to theory which states networks powering top shots are more private than public, something which could be refuted by dapper labs later on when they get back into court to defend themselves against this accusation vigorously .
Conclusion
In conclusion , Judge Marrero denied Dappers request for dismissal of lawsuit since there was enough evidence presented indicating one way or another about how these NFT tokens can be potentially considered as securities .
