tl;dr
A federal judge in California dismissed a class-action lawsuit against Yuga Labs, ruling Bored Ape NFTs do not qualify as securities, marking a major shift in crypto legal battles.
**Federal Judge Rules Bored Ape NFTs Are Not Securities, Deals Blow to Crypto Legal Battles**
A federal judge in California has dismissed a class-action lawsuit against Yuga Labs, the creator of the iconic Bored Ape Yacht Club (BAYC) NFT collection, ruling that the digital collectibles do not qualify as securities. The decision, delivered by Judge Fernando M. Olguin of the U.S. District Court for the Central District of California, marks a pivotal moment in the ongoing legal debates over the classification of non-fungible tokens (NFTs).
Judge Olguin, appointed in 2013 by former President Barack Obama, determined that Bored Ape NFTs fail to meet the criteria of the “common enterprise” test used by courts to assess whether an asset is a security. This test, famously applied in cases involving Dapper Labs’ NBA Top Shot and DraftKings NFTs, requires evidence of a shared financial interest between investors and the issuer.
In his ruling, Olguin emphasized that Bored Ape NFTs differ from previously scrutinized NFTs because buyers typically purchase them on third-party marketplaces like OpenSea and Coinbase, rather than directly from Yuga Labs. This distinction, he wrote, undermines the “interplay” between the NFTs and a proprietary ecosystem that courts have historically associated with securities.
A key point of contention was Yuga Labs’ collection of creator royalties—fees taken from every resale of the NFTs, often up to 10%. The judge argued this structure “de-coupled” the financial interests of NFT holders from the company, as Yuga Labs could profit even if owners sold their assets at a loss. This contrasts with the U.S. Securities and Exchange Commission’s (SEC) previous stance under the Biden administration, which has argued that such royalties could indicate a security.
The ruling highlights the legal divergence between judicial interpretations and the SEC’s regulatory approach. While the SEC has historically pursued cases against NFT projects, Yuga Labs previously saw its yearslong investigation closed under the Trump administration, part of a broader pro-crypto shift. The SEC also recently ended an inquiry into NFT marketplace OpenSea.
Despite the significance of the decision, the Bored Ape NFTs have remained largely unaffected in the market. The collection’s floor price—representing the cheapest available NFT—dropped 2% to $37,337 as of the article’s writing, a 90% decline from its all-time high of $369,900 in April 2022. However, the ruling could set a precedent for future NFT-related litigation, offering clarity for creators and investors navigating the evolving regulatory landscape.
Yuga Labs, once a symbol of the NFT boom, has faced waning cultural relevance and value. Yet, the $7.2 billion in trading volume since the Bored Apes’ 2021 launch underscores their enduring influence. The court’s decision may provide a reprieve for NFT projects seeking to avoid securities regulations, but the broader legal battle over crypto assets continues.
As the NFT market grapples with regulatory uncertainty, this case underscores the complexity of defining digital assets and the growing role of the judiciary in shaping the future of blockchain innovation.