DraftKings has abruptly ceased its nonfungible token (NFT) operations, including the Reignmakers game and its NFT Marketplace, following recent legal challenges.
This decision comes just four weeks after a federal court judge refused to dismiss a class action lawsuit accusing DraftKings of issuing unregistered securities through its NFTs.
In an email to users, DraftKings stated, “After careful consideration, DraftKings has decided to discontinue Reignmakers and our NFT Marketplace, effective immediately, due to recent legal developments.
This decision was not made lightly, and we believe it is the right course of action.” Despite the shutdown, collectors from the Reignmakers fantasy sports game will still be able to access and transfer their digital assets.
DraftKings launched its NFT marketplace on the Ethereum layer 2 Polygon network during the “NFT summer” of 2021, inspired partly by the success of NBA Top Shot NFTs.
In February 2023, one of DraftKings’ founders, Matt Kalish, highlighted the high demand for their first NFT collectibles, which featured Tom Brady and sold out quickly.
However, in March 2023, DraftKings faced a class action lawsuit filed by customer Justin Dufoe, alleging that its NFTs were securities under the Howey Test.
On July 2, the court found Dufoe’s claims plausible, suggesting that DraftKings’ NFTs might be considered investment contracts under the Securities Act and the Exchange Act.
This development mirrors a similar case involving Dapper Labs, the creator of NBA Top Shot NFTs, which settled a lawsuit by agreeing to pay $4 million.
The decision by DraftKings coincides with growing scrutiny over NFTs.
Recently, two artists sued the U.S. Securities and Exchange Commission, seeking clarity on whether NFTs are subject to the SEC’s jurisdiction, including whether they must register their NFT art and disclose risks to buyers.
In addition, the NFT market is experiencing a downturn, with July set to be the lowest monthly sales volume since November 2023, totaling $407.8 million, a significant drop from March’s record of $1.6 billion.
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