Judge Rules Bored Ape NFTs Are Not Securities

Judge Fernando M. Olguin, appointed to the bench in 2013 by former President Barack Obama, delivered a detailed ruling that distinguished Bored Ape NFTs from other digital collectibles previously found to plausibly constitute securities. The judge specifically contrasted Yuga Labs’ case with rulings involving Dapper Labs’ NBA Top Shot NFTs and DraftKings NFTs, highlighting critical differences in marketplace structure and financial relationships. Central to the decision was the finding that Bored Ape NFTs fail to meet the ‘common enterprise’ prong of the test used by courts to determine security status, a key legal threshold that separates investment contracts from other types of transactions.

The judge emphasized that plaintiffs purchased Bored Apes on third-party marketplaces like OpenSea and Coinbase rather than on a marketplace controlled by Yuga Labs itself. This distinction proved crucial, as it undermined the argument that buyers and the company were engaged in a common enterprise. ‘Plaintiffs have not alleged the type of ‘interplay’ between the alleged securities and proprietary ‘ecosystem’ that underpinned the logic of Dapper Labs and DraftKings,’ Judge Olguin wrote, establishing a clear legal boundary between NFTs sold through independent platforms versus those transacted within closed ecosystems controlled by their creators.

Another pivotal element in the ruling concerned Yuga Labs’ collection of creator royalty fees on every Bored Ape sale. The judge found that this practice suggests ‘a de-coupling of [plaintiffs’] fortunes from those of defendants, who stood to gain even if plaintiffs sold their own NFTs at a loss.’ This analysis directly challenges previous legal arguments made by the SEC during the Biden administration, which had contended that creator royalties indicated an asset was a security because creators were encouraging resales.

The royalty structure, typically collecting fees upwards of 10% on secondary market transactions, created what the court viewed as financial separation rather than interdependence. This interpretation marks a significant departure from regulatory perspectives that had gained traction in recent years, particularly as NFT issuers increasingly rely on creator royalties as a form of sustained revenue. The ruling effectively establishes that when a company benefits regardless of individual investor outcomes, the traditional securities framework may not apply.

The dismissal comes at a critical juncture for Yuga Labs, which has been at the front lines of a legal standoff with federal authorities over NFT classification for years. Earlier this year, the SEC closed its yearslong investigation into the company as part of the Trump administration’s aggressive pro-crypto realignment, with the regulatory agency also closing a similar investigation into NFT marketplace OpenSea. However, as the judge’s ruling demonstrates, there’s a substantial difference between regulatory agencies declining to pursue cases and federal courts issuing definitive rulings on legal status.

Despite the legal victory, market reaction has been muted. Bored Ape NFTs show little immediate price impact, with the collection’s floor price declining 2% in the 24 hours following the ruling to $37,337. This represents a staggering 90% decline from the project’s all-time high of $369,900 reached in April 2022, underscoring how legal clarity alone cannot reverse broader market dynamics. The collection, which has seen $7.2 billion worth of trading volume since its 2021 launch, continues to grapple with diminished cultural relevance and valuation pressures despite its legal triumph.

The ruling establishes important precedent for how courts may evaluate other NFT projects moving forward, particularly those utilizing third-party marketplaces and creator royalty structures. For an industry that has operated under regulatory uncertainty since its inception, this decision provides much-needed legal framework while simultaneously highlighting the complex interplay between legal status, market performance, and regulatory evolution in the rapidly developing digital asset space.