Withdrawal Delays Highlight NBA Top Shot Centralization

With over $230M in gross sales since launch and affiliation with one of the most lucrative sports franchises in the world, there’s one important question NBA Top Shot fans should be asking themselves: Do they actually own their NBA Top Shots? Top Shot users are experiencing several days of delays in the withdrawal of funds…

By: Dan Kahan Loading...

Withdrawal Delays Highlight NBA Top Shot Centralization

With over $230M in gross sales since launch and affiliation with one of the most lucrative sports franchises in the world, there’s one important question NBA Top Shot fans should be asking themselves: Do they actually own their NBA Top Shots?

Top Shot users are experiencing several days of delays in the withdrawal of funds from the dapp, which is struggling to keep up with its massive growth. At least one user has been banned from the application after repeated attempts to withdraw his funds, because he triggered “suspicious activity.” While the experience may sound familiar to users of popular fintech or Web2 companies, it’s a far cry from the self-custody and permissionless experience that DeFi enthusiasts have come to expect.

Last week, a Top Shot buyer and Cover Protocol advisor who goes by the online name of “DeFi Ted” documented his struggles trying to withdraw funds from the Top Shot dapp.

After three failed attempts to withdraw roughly $40k in profits, Ted contacted the customer support for NBA Top Shot’s parent company, Dapper Labs. Ted said he had completed all necessary KYC (Know Your Customer)/ AML (Anti-Money Laundering) identification procedures, had made multiple credit card purchases on Top Shot, and had completed over 350 sales and purchases since signing up in October.

Dapper Labs customer support responded over a week later that they had been overwhelmed with support requests, but would escalate the case to their Compliance Team and get back to him within a few days.

Confronting the Manager

Frustrated, Ted contacted Roham Gharegozlou, the founder of Dapper Labs, which makes Top Shot, on Discord and questioned whether or not NBA Top Shots was solvent (ie: whether or not the company actually possessed enough liquid assets to allow users to withdraw).

Gharegozlou assured Ted that the issue was entirely due to KYC/ AML delays heightened by the massive influx of new users, and that there were thousands of users in the same position.

The Defiant hasn’t received a response in request for comment from Dapper Labs and Gharegozlou.

Upon gaining approval to complete his withdrawal requests, Ted discovered that the maximum daily withdrawal limit was $1,000, meaning that withdrawing all of his funds could take months. This was further complicated by week-long processing times for each $1,000 withdrawal, during which time further withdrawals were not allowed.

Ted continued to follow up on his frustrations with Gharegozlou. After exchanging some messages, Ted discovered that he had seemingly been suspended from Dapper and was no longer able to access his Top Shot account or any of his funds. The Defiant reviewed a screenshot of Ted’s suspended account.

A scroll through the comments on DeFi Ted’s Twitter post shows that other users have had similar issues with withdrawals, characterized by long wait times of over a week to withdraw up to $1,000. Some users said that they were granted permission to withdraw funds from Top Shot around a month after submitting their requests.

Benefit of the Doubt

The NBA Top Shot team has alerted users about how the rapid, massive influx of new users is causing withdrawal delays. To be clear, there is no evidence to suggest that NBA Top Shot is insolvent.

Withdrawal times highlight a larger issue with NFTs on Flow, the blockchain underlying Dapper Labs: Centralization. Unlike on many Ethereum DeFi dapps, Top Shot users aren’t in control of their funds.

The Centralization Dilemma

The NBA Top Shot dApp lives on the Flow Blockchain which is run by Dapper Labs. Dapper Labs, as the progenitor of CryptoKitties, is a trusted company in the DeFi space, but licensing agreements with NBA muddy the bounds of “ownership.”

The same is true about NBA Top Shot––asset withdrawals are centrally managed by the dapp and there are no alternative marketplaces for those NFTs on the Flow blockchain. This means that when NBA Top Shot shuts their market down for maintenance, it effectively puts a halt on all NBA Top Shot trading.

All of this is to say that if a user can be banned from their Dapper account or even just the Top Shot dapp, it puts into question whether or not NBA Top Shot are actually “ownable.”

True Ownership

In order to participate in the NBA Top Shot ecosystem, users need a Dapper account which includes a Dapper-hosted wallet to hold their NFTs. Without a Dapper account, users can’t access the NBA Top Shot market or view their own Top Shots.

According to the “Term and Termination” section of Dapper’s terms of service:

“At any time and in its sole discretion, without prior notice, and without any liability to you, Dapper may (i) cancel or deactivate User’s Account; or (ii) temporarily or permanently, suspend, restrict, or terminate access to any or all of Services for any reason or for no reason. Dapper is under no obligations to disclose its reason for any termination or suspension of the Service for User or generally. Dapper shall not be liable for any losses suffered by User resulting from any suspension or termination of the Services. You agree that your NFTs will be impossible to access during a suspension of Services.”

Dapper clarifies that in the case of an account termination, they will attempt to return all of a user’s NFTs and currency to an external wallet, but if they cannot do so “after reasonable efforts,” the NFTs will be forfeited to a governmental agency.

That said, even if a Top Shot is transferable to an external wallet, if all of its functionality, including the ability to sell it on a marketplace, is tied to having a Dapper account and interacting with the Flow blockchain, it’s not entirely clear what worth it could have sitting in an external wallet.

For a digital asset like an NFT to be truly “ownable,” ownership must be trustless, transferable, and unchained from the life-cycle of any specific company’s willingness to provide service. Otherwise, it’s hard to say what would differentiate an NFT from a digital item in a mobile game that you can lose access to if the game ever stops running.

Ted’s Resolution

“I was actually banned from Dapper and Topshot – my account had been shut down since the Roham tweet,” Ted told The Defiant. “Banned at Dapper meant no access to my account at all. So that was locked. NBA Top Shot account was also locked at login.”

Ted said he wasn’t notified of a specific reason why he was banned other than a “suspicious activity” notification. “I don’t really buy that as my activity on the account had not changed,” he said.

After posting on Medium, Dapper’s compliance leader allowed Ted to access his account again in order to remove his assets and close it down himself.

To be sure, Ted’s experience does not seem to be a common one. There are no other verifiable accounts of Dapper banning legitimate users. But regardless of how infrequently Dapper may choose to ban users, the fact remains that they have the power to do that.

NBA Top Shot will likely solve its scalability issues and users won’t have problems withdrawing funds.

Still, if Dapper can unanimously decide to cut someone off from NBA Top Shot, NFT collectors must consider what it is that they actually “own.”

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