A recent ruling by a federal judge in a lawsuit against Dapper Labs has sparked debate over whether digital assets on private blockchains should be considered securities. The class-action lawsuit, filed in May 2021 by plaintiff Jeeun Friel, accused Dapper Labs of selling NBA Top Shot non-fungible tokens (NFTs) as unregistered securities. While Judge Victor Marreo denied Dapper Labs' motion to dismiss the lawsuit, legal experts have noted that this is not a final ruling, and the case will proceed based on the plaintiff's allegations.
According to the Blockchain Association's chief legal officer, Jake Chervinsky, it would be absurd to consider all valuable digital assets stored in centralized databases securities, since it would result in the Securities and Exchange Commission (SEC) regulating all major video game developers, event ticketing platforms, and travel reward programs becoming public reporting companies.
As a result of the judge's denial of the motion to dismiss, the securities claims are only considered "plausible," a very low bar, and not a final decision.
This is false.
— Jake Chervinsky (@jchervinsky) February 22, 2023
The judge didn't decide anything. He allowed the case to proceed past a motion to dismiss because the securities claims were at least "plausible," an extremely low bar and not a final ruling at all.
Do I really have to say "basketball cards are not securities"??? https://t.co/W1yYVcW1Ki
Jesse Hynes, another US lawyer, noted that motions to dismiss are rarely successful because the plaintiff only needs to plead enough evidence for the case to proceed. Hynes added that Dapper Labs will likely file for a motion for Summary Judgment once discovery is completed.
Meanwhile, James Murphy, known as "MetaLawMan," suggested that the allegations that Dapper Labs issued NBA Top Shot Moments NFTs on a privately-run blockchain were a "fundamental" factor behind the court's decision to reject the motion to dismiss.
He suggested that this could be considered a net positive for Ripple in its case against the SEC because XRP is issued on a public blockchain.
4/ The Judge cited the fact that Top Shots trade on a Private blockchain run by the Issuer as a key factor in his ruling.@XRP trades on a Public blockchain.
— MetaLawMan (@MetaLawMan) February 22, 2023
For this reason, the Top Shot opinion could be considered net positive for Ripple.
Not a legal opinion--just a tweet.
Even though the ruling may have caused some concern among investors, Marreo stressed that not all NFTs will constitute securities, and each case will have to be considered individually.
Flow (FLOW) tokens issued by Dapper Labs fell 6.4% from $1.24 to $1.16 in 15 minutes as a result of the dismissal. CoinGecko reports that FLOW token has since rebounded to $1.29.
This case highlights the need for greater clarity in the legal classification of digital assets as well as the potential harm caused by such a classification to the broader blockchain industry.
