NFT Projects Beware: Top Shots Class Action Could Set Precedent

A judge says it is plausible Top Shot Moments are securities, and the decision could change the entire NFT industry

article-image

NBA Top Shot modified by Blockworks

share

Dapper Labs may not get its way in the class action lawsuit against its Top Shot NFTs, and other projects should be on notice, attorneys say. 

Counsel from Skadden, Arps, Slate, Meagher and Flom LLP said that the court’s decision last week to allow the class action, alleging Top Shot moments are securities, to move forward foreshadows how NFTs may be treated in the future. 

US District Judge Victor Marreo determined the plaintiff’s argument — that Dapper Lab’s NBA Top Show Moments passes the Howey Test —- is plausible. But ruling against dismissal does not in and of itself signify any ruling, attorneys said. 

The Howey Test has four main pillars to determine whether an asset is a security: 

  • Has money been invested? 
  • Is it a common enterprise? 
  • Is there a reasonable expectation of profit?
  • Is the profit derived from the efforts of others?

There was an undisputed investment of money, Dapper Labs and the plaintiffs agree, and, Marreo said in the filing, it could be conceived that there was a pooling of funds as Moments sales created revenue and supported the Flow blockchain, which has its own native token, FLOW.

As for reasonable expectation of profits, it is feasible that Moments values were determined by Dapper Labs’ ability to turn a profit, Marreo said.

A key factor in the case is going to come down to Dapper Lab’s sole control over the marketplace where Moments were bought and sold, giving Dapper the ability to “significantly, if not entirely, dictate[d] Moments’ use and value.”

“This aspect of the court’s ruling highlights the potential regulatory risks of a ‘walled garden’ business model where the NFT issuer creates its own marketplace that serves as the only place for buyers and sellers to trade,” attorneys wrote in a contributed piece to Columbia Law School’s blog. 

The plaintiffs, in their allegations, argued Moments’ royalty structure makes them a horizontal commonality, meaning there was a “pooling of funds tied to the success of the overall venture.” Plaintiffs also said Dapper is operating a vertical commonality because it collects a percentage on each sale. The court agreed there was adequate evidence to the horizontal commonality argument, but not the vertical commonality allegations. 

“The court held that the presence of seller royalties not directionally linked to an NFT holder’s profits or losses is insufficient, by itself, to establish vertical commonality between the promoter and purchasers — a ruling that could have broader ramifications given the near-ubiquity of royalties in the NFT market,” the attorneys wrote. 

There is legal precedent to accept both types of commonalities as evidence an asset is a security, attorneys at Winston and Strawn noted

It is unclear whether the case will proceed to trial or if a settlement may be reached. A precedent could be set.


Get the news in your inbox. Explore Blockworks newsletters:

  • Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
  • Empire: Start your morning with the top news and analysis to inform your day in crypto.
  • Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
  • 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
  • Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
  • The Drop: For crypto collectors and traders, covering apps, games, memes and more.
  • Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.
Tags

Upcoming Events

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

tg trading bot report graphic.png

Research

Telegram trading bots have found their primary niche in highly speculative token launches and retail-dominated memecoin markets, with many features specifically tailored to token sniping and copy-trading strategies.

article-image

As the markets end a rocky Q1, investors wait for tariff announcements and Trump’s “Liberation Day”

article-image

Off The Grid’s Web3 lead shares details on the game’s economy and how the token will be integrated

article-image

Credora and others are setting new standards for transparent, user-facing risk in DeFi

article-image

How Brian Armstrong’s vision for a “PayPal for Bitcoin” evolved into Coinbase, one of the most influential companies in crypto

article-image

Paradigm’s Charlie Noyes thinks that the attention on stablecoins is well-deserved after Mesh’s $82 million round

article-image

Crypto may benefit from developments during the second quarter after a rough start to the year