The agreement could end the lawsuit, which began in 2021 and dragged on for almost three years. Investors who filed the class-action lawsuit had argued that NBA Top Shot Moments was essentially an unregistered security because its value was tied to the popularity of the platform. They also alleged that Dapper Labs blocked investors from withdrawing funds for months and did not allow digital collectibles to be bought and sold on other NFT platforms when the lawsuit was filed.

Dapper Labs strongly denied the allegations. The company’s lawyers argued that NBA Top Shot Moments are essentially digital basketball cards and cannot be classified as securities. The compromise agreement presented Monday includes concessions for both sides. Under the agreement, investors will give up their claim that Moments is a security. In return, Dapper Labs will establish a compensation fund totaling $4 million. This fund will be used to cover payments to plaintiffs, attorney fees and settlement costs.

The agreement is not limited to this. Dapper Labs has agreed to provide mandatory training programs to its employees on federal securities laws and ethical marketing practices. It will also take steps to accelerate payment and withdrawal transactions on the platform.

At the end of the day, this agreement is also an important step for the future of blockchain technology and NFTs. Dapper Labs also agreed to transfer control of the remaining FLOW tokens to the Flow Foundation in order to ensure the decentralization of the Flow ecosystem. This move demonstrates the company’s commitment to the platform becoming increasingly decentralized.

Importantly, the settlement was a private case with investors and no regulatory body was involved. But Gharegozlou told CoinDesk that the deal is a “good start” to providing greater clarity on the legal status of the company’s NFTs. Gharegozlou argued that consumer-focused NFTs are not financial products and should be regulated by state-level consumer protection laws. He also stated that they will push for legislative changes at the federal level that clarify that products like NBA Top Shot should not be subject to federal financial regulations.

Gharegozlou said that no regulatory agency had classified Moments as a security throughout the case, adding that the US Securities and Exchange Commission (SEC) had previously initiated an investigation into Dapper Labs, but closed this investigation in September 2023. This information suggests that regulators have not yet taken a clear stance on the legal status of NFTs.

This settlement between Dapper Labs and investors could be a major turning point for the future of blockchain technology and NFTs. The deal could satisfy both investors and the company while also helping reduce uncertainty around the legal status of NFTs. However, the question of how regulators will approach this area remains unanswered. As Gharegozlou emphasized, how consumer-focused NFTs will be regulated and classified will be an important issue to follow in the coming period.