In 2021, Flow blockchain and NBA Top Shot developer Dapper Labs were sued for allegedly selling NFTs as unregistered securities. The lead plaintiff in the case, Jeeun Friel, stated in the complaint that "NBA Top Shot Moments" is a security because its value increases with the success of the project, so Dapper Labs should register with the U.S. Securities and Exchange Commission, but Dapper Labs did not do so, so it violated U.S. securities laws.
After a long litigation process, the case finally reached an important milestone recently: Dapper Labs has successfully reached a settlement agreement with the plaintiff.
Roham Gharegozlou, co-founder and CEO of Dapper Labs, said: "Dapper Labs is pleased with the outcome of this settlement, which marks an important step forward for Dapper Labs and the Flow community. In short, legal clarity not only allows Dapper Labs to focus on its core mission and continue to provide a better service experience for users, but also gives the vibrant community of developers, partners and entrepreneurs on the Flow chain greater freedom to create breakthrough Web 3 applications for consumers around the world."
It is worth mentioning that this case also confirms that Flow is a fully decentralized, permissionless, and public blockchain that is not controlled by Dapper Labs. Flow will continue to work on building an on-chain world that allows individual users to own their own data, digital assets, and online identities, with the goal of ensuring that digital communities can thrive in an open, decentralized environment. On the Flow blockchain, creators build content for the community without taking on the risk of platform dependence, helping people explore Web 3 easily and safely.
Legal clarity paves the way for continued growth and innovation at Dapper Labs
Dapper Labs is the creator of Flow blockchain, a decentralized blockchain designed for the next generation of digital assets, applications and games. Dapper Labs' mission is to make Web3 simple and secure for everyone, while working to foster innovation and build a thriving digital community world.
With the successful settlement of this case, Dapper Labs not only consolidates its commitment to innovation and decentralization in the field of digital collectibles, but also further demonstrates that NBA Top Shot Moments it provides is not a security under U.S. federal law. With the further strengthening of legal clarity, it also paves the way for Dapper Labs' continued growth and innovation.
In fact, NBA Top Shot has made good progress during the previous litigation. Data provided by Dapper Labs show that since January 1, 2024, more than 27,000 independent collectors have purchased collection sets or Moments on NBA Top Shot; since November 2023, NBA Top Shot's user conversion rate has increased fivefold (Note: User conversion refers to the conversion from visitors to the website to first-time buyers); in the fourth quarter of 2023, the number of independent collectors who spent an average of more than $1,000 per week on NBA Top Shot was 135, and in the first quarter of 2024, this number increased to 241, an increase of 78%. In addition, Dapper Labs has launched Fast Break, a daily game using NBA Top Shot Moments, which has resonated greatly with the community, with thousands of active players interacting with NBA and WNBA game events every day. It is worth mentioning that in April this year, NBA San Antonio Spurs star Wen Banyama's 1-of-1 Moment was successfully sold at a high price of $145,000.
Other key points in the case settlement agreement
1. Decentralization: The Flow blockchain operates as a fully decentralized public blockchain, ensuring that it can continue to operate without Dapper Labs, providing a strong and independent ecosystem for users and developers.
2. Market expansion: Since March 17, 2022, four new markets have been authorized to display and sell NBA Top Shot Moments. This market expansion has also received the full support of the NBA and the NBA Players Association, providing collectors with more flexibility and opportunities to trade and enjoy the NBA's "highlight moments."
3. Enhance user experience: NBA Top Shot Moments’ payment and withdrawal systems have been optimized and improved. Thanks to the cooperation with Checkout.com and Fortress Blockchain Technologies, Inc., users can now process withdrawals within 2-10 working days.
4. Compliance and Education Commitment: Dapper Labs has implemented a mandatory annual training program for all employees, focusing on requiring everyone to comply with U.S. federal securities laws and ethical marketing practices. This initiative ensures project transparency, legality, and protects community interests.
5. Flow tokens and ecosystem growth: The remaining Flow tokens will be transferred to the Flow Foundation wallet, and Dapper Labs will give up control of the tokens to support the continued growth and decentralization of the Flow ecosystem.
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