A U.S. District Judge has issued a 64-page decision in which he rejected Dapper Labs’ Motion to Dismiss a proposed class action lawsuit initiated by holders of NBA Top Shot Moments NFTs. This decision, which is the first of its kind, has significant implications for the world of NFTs and crypto tokens.

NBA Top Shot is a collection of digital video clips created by Dapper Labs in partnership with the NBA and NBA Players Association. It has maintained its popularity, with approximately $982 million USD in trading volume, as reported by DappRadar. “Top Shot Moments” are digital video clips that highlight certain moments from various NBA games, and individuals are able to purchase them through the NBA Top Shots platform.

The lawsuit, filed against Dapper Labs and its founder, Roham Gharegozlou, alleges that the company should have registered its NFTs as securities because their value was directly tied to the success of Dapper’s blockchain. As a result, Dapper allegedly prevented holders from “cashing out” for months on end and reaped “hundreds of millions of dollars.”

In denying Dapper’s Motion to Dismiss, Judge Victor Marrero noted that the trading of Moments is strictly limited to the company’s Flow blockchain, and that purchasers actively rely on Dapper’s expertise and management, as well as its continued existence in the marketplace, for Moments to hold their value.

Judge Marrero stated that the court was asked to assess whether Moments are more like commodities or more like crypto tokens, and that this was a “close call.” He added that, hypothetically, 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.

Ultimately, this lawsuit, like each one we’ve seen to date, comes back to the SEC’s landmark Howey test, which governs whether an instrument like NFT Top Moments NFTs are “securities” versus commodities. The ongoing question of whether NFTs and crypto tokens are securities is one that certainly will operate on a case-by-case basis.

SEC Chair Gary Gensler has taken a more stringent approach, calling for more crypto regulation, but has continued to frustrate investors and companies issuing these tokens due to the futile “enforcement by regulation” approach that hasn’t done anything but penalize those who have simply begged for further clarification and understanding.

The outcome of this case will certainly shed some light on the nature of the relationship between a blockchain and investors, the criteria that need to be met whenever digital assets are at play, and how far that analysis is extended. With more than 1.5 million users of NBA Top Shot, the digital collectibles have garnered over $1 billion USD for Moments alone.

It’s worth noting that this case is far from over, as the Court did not rule that the plaintiffs/investors were correct. Rather, a deeper analysis into the mechanics of how the token was issued and the effects it has continued to have on both investors and the overall market is required. For updates, interested parties can follow the case at Friel v. Dapper Labs, 21-cv-5837, US District Court, Southern District of New York (Manhattan).