Dapper Labs, the blockchain company behind the NBA Top Shot collectibles, has settled a class-action lawsuit for US$4 million, addressing allegations of securities law violations.

Pending court approval, the settlement will compensate claimants and cover legal fees, providing Dapper Labs with a clearer legal framework to continue its operations.

If approved plaintiffs can no longer claim that Dapper Labs’ NBA-themed NFTs are securities.

“After discovery, it was understood and agreed that @Flow_blockchain is a decentralized public network and that digital collectibles like @NBATopShot are not securities in the same way trading cards are not securities,” said Dapper Labs CEO Roham Gharegozlou in a statement on X.

“Today’s resolution lets us stay focused on what matters – building great experiences for our fans.”

The legal challenge, filed in the U.S. District Court for the Southern District of New York, argued that NBA Top Shot Moments should be classified as unregistered securities, linking their value to the success of the platform.

Plaintiffs also claimed that Dapper Labs manipulated the market and delayed withdrawals.

The case drew significant attention when a federal judge allowed it to proceed, indicating that Top Shot NFTs might meet the criteria for a securities offering.

This was partly because the NFTs are hosted on the Flow blockchain, created by Dapper Labs, which the judge deemed less decentralized than networks like Bitcoin or Ethereum.

As part of the agreement, Dapper Labs will implement business changes, including transferring FLOW tokens to the independent Flow Foundation and enabling third-party marketplaces to sell Top Shot NFTs.

These measures, aimed at improving market fairness and withdrawal processes, were already in place before the settlement was reached.