"Court Redefines NFTs as Utility Assets, Challenging SEC's Investment Lens"

A federal court in California has ruled that Bored Ape Yacht Club (BAYC) NFTs are not securities, dismissing a class-action lawsuit against Yuga Labs and marking a pivotal moment in the legal classification of non-fungible tokens (NFTs). Judge Fernando M. Olguin, citing the Howey test-a standard for determining whether an asset qualifies as a security-found that the NFTs did not meet the criteria for an investment contract. Specifically, the judge emphasized the absence of a "common enterprise" between Yuga Labs and NFT holders, a key component in securities lawBored Ape NFTs Are Not Securities, Court Rules in Landmark …^[1]. Unlike previous cases involving NFTs such as Dapper Labs' NBA Top Shot, the Bored Ape NFTs were primarily sold on third-party platforms like OpenSea and Coinbase, not directly through Yuga Labs' controlled ecosystemBored Ape NFTs Cleared of Securities Status by Court^[2]. This distinction, the court argued, decoupled the financial outcomes of NFT purchasers from the company's success, undermining the plaintiffs' claims of a shared investment structureFederal Judge Dismisses Securities Claims in Bored Ape Yacht …^[3].

The ruling further highlighted the role of creator royalties in the analysis. Yuga Labs earns a fixed percentage from secondary sales of Bored Ape NFTs, a mechanism the court deemed insufficient to establish a financial interdependence between the company and buyers. "Plaintiffs' fortunes are not tied to those of defendants," the judge wrote, noting that Yuga's profits could persist even if holders sold their NFTs at a lossBored Ape NFTs Are Not Securities, Court Rules in Landmark …^[1]. This reasoning directly contradicts the U.S. Securities and Exchange Commission's (SEC) prior stance, which had argued that such royalty structures indicated a securityCourt Rules Bored Ape NFTs, ApeCoin Are Not Securities^[4]. The decision, however, does not invalidate the SEC's broader regulatory approach but underscores the nuanced application of securities law to NFTs, particularly when transactions occur outside issuer-controlled platformsBored Ape NFTs Cleared of Securities Status by Court^[2].

The case has broader implications for the NFT market and regulatory oversight. Yuga Labs, which faced a yearslong SEC investigation into its compliance with securities laws, announced in early 2025 that the agency had closed its probeBored Ape NFTs Are Not Securities, Court Rules in Landmark …^[1]. The SEC also terminated a similar investigation into OpenSea, signaling a potential shift in enforcement priorities. While the closure of these investigations reflects administrative discretion, the court's definitive ruling provides clearer legal precedent for NFT projects. The decision may encourage developers to structure NFTs as access-based or utility-driven assets rather than investment vehicles, reducing the risk of regulatory scrutinyCourt Rules Bored Ape NFTs, ApeCoin Are Not Securities^[4].

Market reactions to the ruling have been muted. Despite the legal victory, Bored Ape NFTs have experienced a prolonged decline, with the collection's floor price dropping 90% from its April 2022 peak of $369,900 to $37,337 at the time of the rulingBored Ape NFTs Are Not Securities, Court Rules in Landmark …^[1]. This trend reflects broader market saturation and waning cultural relevance for the once-dominant NFT collection. However, legal clarity could incentivize new NFT creators to emphasize community engagement and functional utility, aligning with the court's emphasis on distinguishing speculative assets from non-security tokensCourt Rules Bored Ape NFTs, ApeCoin Are Not Securities^[4].

The outcome also raises questions about the future of NFT-related litigation. While the court dismissed the case against Yuga Labs, it allowed for a narrower refiling by October 10, 2025, suggesting unresolved legal complexities in applying traditional securities frameworks to digital assetsFederal Judge Dismisses Securities Claims in Bored Ape Yacht …^[3]. Legal experts caution that the SEC's ongoing scrutiny of NFT projects, coupled with the court's focus on transactional structures, may lead to further litigation. The Bored Ape case, however, sets a precedent that could influence how courts evaluate the security status of NFTs, particularly those traded on decentralized platformsFederal Judge Dismisses Securities Claims in Bored Ape Yacht …^[3].