KEY POINTS
A U.S. judge in Massachusetts has denied DraftKings‘ motion to dismiss a class action lawsuit filed by buyers of its non-fungible tokens (NFTs), who claim these are unregistered securities.
The lawsuit, Dufoe v. DraftKings Inc., was filed in March 2023. It claims that the sports-themed NFTs, minted on the Polygon blockchain and offered by DraftKings, should be classified as an “investment contract” and therefore a security under federal law.
Judge Denise Jefferson Casper’s recent court filing indicates that the case will proceed.
This development occurs amid a struggling market for NFTs. According to CryptoSlam data, the NFT market experienced a 46% decline last month compared to May. Ethereum-based NFT sales dropped by 50%, while Bitcoin and Solana NFTs saw decreases of 47% and 38%, respectively. This followed a previous decline in May, which saw a 50% drop from April.
The case against DraftKings highlights broader issues with the NFT market, including unclear regulations and jurisdiction.
Similar lawsuits have been filed against other companies. For instance, last month Dapper Labs, the company behind the NBA Top Shot NFT platform, settled a class action lawsuit where customers alleged that the NFTs sold were unregistered securities.
High-profile figures have also been drawn into NFT-related legal troubles. Last November, soccer star Cristiano Ronaldo faced a class-action lawsuit linked to his partnership with Binance on NFTs, accused of promoting unregistered securities. A judge denied Ronaldo’s motion to dismiss the case in May, meaning it is still ongoing.
The legal and market uncertainties surrounding NFTs have prompted some companies to retreat from their NFT projects. In March, Starbucks ended its NFT rewards beta program, Odyssey.
Similarly, in January, GameStop shut down its NFT marketplace after two years, citing crypto regulatory uncertainties. Additionally, major tech companies like X (formerly Twitter) and Meta have discontinued their NFT features.
