Last week a federal judge preliminarily concluded that NFTs of game highlights created by Dapper Labs, a Vancouver-based blockchain company that has partnered with the NBA and NBPA, and sold as NBA Top Shot
Moments, are securities and thus subject to federal securities laws.
Dapper earns revenue from Moments in several ways, such as by keeping a 5% transaction fee on tokens sold via its marketplace and by taking a “cash out fee” when a purchaser transfers their Dapper balance to a bank account. According to Marrero, Dapper’s “combined market capitalization from sales of Moments on the NBA Top Shot application had reached $1.9 billion.”
Pushing in the direction of security recognition, Marrero underscored that the value of Moments is “causally related” to the profitability of Dapper. This is because Dapper generates revenue through the sale and transaction fees. The company also retains the purchasers’ cash after withdrawals are requested, allegedly as a means of “raising money at a high valuation” and “propping up the value” of Dapper’s “Flow Blockchain,” which is used to record transactions.
Marrero also distinguished Moments from baseball cards and other physical collectibles. If Dapper “went out of business and shut down the Flow Blockchain, the value of all Moments would drop to zero,” he wrote. In contrast, “if Upper Deck or Topps, two longtime producers of physical sports trading cards, were to go out of business, the value of the cards they sold would be wholly unaffected, and may even increase, much like posthumously discovered art.”