A United States federal judge has dismissed a major lawsuit against Yuga Labs, the creators of the famous Bored Ape Yacht Club (BAYC) NFT collection, stating that the company’s NFTs do not qualify as securities under US law. The case’s outcome could set an important precedent for how NFTs are regulated moving forward.
Key Takeaways
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Judge ruled Yuga Labs’ NFTs do not meet the legal definition of securities.
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Case centered on the application of the SEC's Howey Test to NFTs.
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Ruling could impact how US authorities approach regulation of digital collectibles.
Background: The Lawsuit Against Yuga Labs
In 2022, investors filed a lawsuit against Yuga Labs, claiming that the company misled buyers by offering NFTs as unregistered securities. The suit argued that Yuga Labs' marketing and sales of NFTs like Bored Ape Yacht Club and the token ApeCoin were structured as investment contracts, and therefore should be regulated as securities.
The Howey Test and Its Role
At the heart of the case was the application of the Howey Test, a legal standard used by the SEC to determine whether certain transactions qualify as investment contracts, thus falling under securities laws. The Howey Test asks whether there is:
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An investment of money
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In a common enterprise
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With a reasonable expectation of profits derived from the efforts of others
Judge’s Reasoning Behind The Dismissal
The presiding judge, Fernando M. Olguin, concluded that the plaintiffs did not adequately demonstrate that Yuga Labs’ NFTs satisfied all three elements of the Howey Test. In his reasoning, Judge Olguin highlighted the following points:
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Yuga Labs marketed its NFTs primarily as digital collectibles offering club membership and other immediate benefits, not as investment opportunities.
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There was no ongoing financial relationship or dependency linking NFT buyers to Yuga Labs, failing the “common enterprise” criterion.
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The roadmap and promotional statements from Yuga Labs did not constitute explicit promises of profit, and references to the value and trading volumes of NFTs did not automatically imply expectation of profit.
Implications for the NFT Industry
This dismissal is a significant milestone for the broader NFT ecosystem. By ruling that NFTs, at least as sold by Yuga Labs, are not securities, the judge set a persuasive example for similar cases in the digital asset space. This could provide additional clarity to creators, marketplaces, and collectors, reducing the likelihood of regulatory risks for NFTs marketed as collectibles.
NFT projects, however, are still advised to be cautious in how they market and structure their offerings. NFT initiatives directly promising financial returns or pooling profits might still fall under securities scrutiny.
What’s Next for Digital Collectibles?
While this ruling favors Yuga Labs and similar NFT projects, regulatory uncertainty still looms over some areas of Web3. U.S. courts and regulators will continue to assess each case on its merits, especially as NFT use-cases evolve.
For now, the Yuga Labs decision suggests that NFTs tied closely to art, community access, or digital membership—without profit guarantees—stand on safer legal ground than those marketed predominantly as investments.
Sources
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