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In the world of NFTs, an NFT may not be considered a security if it's presented as a collectible and relates to an existing asset, and there's public assurance of its authenticity on the decentralized ledger. However, if an NFT is marketed as an investment that generates a return, it would be considered a security. If the price of an NFT is affected by external market factors such as inflation, it would not be considered a security. Fractionalized NFTs may be considered securities, and platforms that enable the sale and secondary trade of NFTs may need to register with the SEC as a broker-dealer, exchange, or alternative trading system. An alternative trading system is a less regulated trading venue that matches buyers and sellers for transactions.

Finally, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have not yet addressed whether or when an NFT is a security. However, companies can't avoid securities laws by claiming a digital asset is an NFT, as the SEC is concerned with the economic realities of an offering. State securities regulators have already taken enforcement actions against companies that claimed NFTs were not securities. Although the SEC has not yet brought any enforcement actions involving NFTs, it's expanding its Crypto Assets and Cyber Unit, and has reportedly issued subpoenas seeking information about how NFT creators and crypto exchanges are using NFTs. Fractionalized NFTs are more likely to be deemed securities because they're not unique and are interchangeable.

Recently, in February 2023, a lawsuit involving NFTs and Dapper Labs made headlines. A federal judge ruled that the non-fungible tokens (NFTs) offered by Dapper Labs under the NBA Top Shot brand could potentially be classified as securities. The ruling comes after a class-action lawsuit was filed against Dapper Labs and its CEO, Roham Gharegozlu, accusing them of violating federal securities laws by offering the NFT collection without prior registration with SEC. While the judge did not classify Dapper Labs' FLOW tokens as securities, he noted that they were essential to the overall scheme in question. 

The judge explained that the FLOW tokens were required for validating transactions on the Flow Blockchain through the Proof of Stake mechanism and incentivizing miners. This utility of the FLOW tokens added value to the Moments through the network's consensus on ownership and the price of each transaction. Additionally, the judge also noted that Dapper Labs' creation and maintenance of a private blockchain and restriction of trade to only the Flow Blockchain supports the conclusion that purchasers rely on the company's expertise, managerial efforts, and continued success for the value of Moments. The judge clarified that his conclusion that Moments is an investment contract under Howey is narrow and specific to the scheme used by Dapper Labs to offer Moments. He suggested that other NFTs may not be considered securities. The judge ultimately concluded that Dapper Labs offered Moments as an investment contract and thus a security, which should have been registered with the SEC.

With regard to the second and third prongs, the court primarily relied on the factual circumstances surrounding Dapper Lab's operation of its ecosystem to satisfy their conditions. Specifically, the Moments NFTs exist within a closed-loop ecosystem consisting of an exclusive marketplace and a 'private' blockchain that are both controlled by Dapper Labs. The court noted that since funds generated from sales of the NFTs flow to Dapper Labs, they are inevitably used to further the improvement of the Flow blockchain, creating a “causal relationship” between the value of Moments NFTs and the profitability of Dapper Labs as a whole. This implies that their value depends on the success of the Flow blockchain.

The court concluded that if Dapper Labs went out of business and shut down the Flow blockchain, the value of all Moments NFTs would drop to zero. This is vastly different from other collectibles that would survive even if their issuing entity were to go out of business. Thus, the court found that there was a plausible case for the NFTs to be deemed as securities.

However, the court also acknowledged that not all NFTs offered or sold by any company will constitute a security and that each scheme must be assessed on a case-by-case basis. Therefore, it is crucial to evaluate NFTs' individual characteristics to determine whether they fall under the definition of securities.