Because they don't have a market cap over a trillion dollars.
That's like saying "The USD is used as fuel for the US economy." Even talking about more crypto-concepts as gas fees doesn't negate this. It's not some "other purpose" and courts won't buy such disingenuous spins.
What level of detail do you want?
People have a need to secure their transactions from double-spends and stealing etc. I personally think blockchains are a first-gen technology but the network requires ETH to pay for transactions. What is your point?
But about whether it can never be considered a security? In theory I agree with you. Just because something has utility, doesn't mean it's not a security by the Howey test. Today the SEC says one thing (ETH is not a security). Tomorrow under different leadership they can turn around and say it is. Good luck convincing a court, though.
And Howey is just on the federal level! As I have already said -- most Kickstarter campaigns are actually unregistered securities offerings, according to the Risk Capital test of California and a dozen other states:
https://www.cuttingedgecapital.com/what-is-a-security-and-wh...
Proceed at your Peril: https://ir.law.utk.edu/cgi/viewcontent.cgi?article=1828&cont...
Silver Hills case established the Risk Capital test:
https://www.jdsupra.com/legalnews/silver-hills-doesn-t-mute-...
And in fact, nearly everything can be a security if you try hard enough:
https://www.linkedin.com/pulse/everything-security-chris-har...
So "how it works" is whatever the system happens to come up with in court cases and precedents. The definitions vary from jurisdiction to jurisdiction and are vague as it is. After all, capital invested into anything is "put at risk", even if by the Howey test it's not. While in Singapore, the definition of security is a lot more narrow. And FINMA in Switzerland seems to have a much more sane system specifically for tokens:
https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleit...
This is why blockchain and Web3 innovation is leaving the United States
Any securities lawyer worth their salt will tell you that mere possible utility does not make something not a security. The distinction of “utility token” vs “security token” is not an official dichotomy. Something could be a utility token AND STILL be sold in securities sales.
For example, concert tickets are useful to attend a concert. But if you buy thousands of them, and scalp them, you aren’t doing it to attend a thousand concerts. You’re doing it to resell and make a profit. You have a common enterprise with the people putting on the concert.
Similarly if you buy too many utility tokens for you to conceivably use in the next few years, that could be a securities transaction by the Howey Test.
Look no further than LBRY case recently decided in SEC’s favor. I read it and spoke to the founder recently (randomly met him in a car shop LOL).
And I am not even talking about the Risk Capital test, used in California and a dosen other Western states, by which most Kickstarter campaigns are technically unregistered securities sales!
That is not a common enterprise. Where is the role of the "investor" (purchaser of the cards) in this enterprise?
Can you link to an authoritative or reliable definition? Or case law? Really anything? That would tive us a basis for discussion. Merely claiming “it’s not a common enterprise” cause it’s your feeling, is a weak defense if SEC were to bring a case.
> In order to satisfy the "common enterprise" aspect of the Howey test, federal courts require that there be either "horizontal commonality" or "vertical commonality." See Revak v. SEC Realty Corp., 18 F.3d. 81, 87-88 (2d Cir. 1994) (discussing horizontal commonality as "the tying of each individual investor's fortunes to the fortunes of the other investors by the pooling of assets, usually combined with the pro-rata distribution of profits" and two variants of vertical commonality, which focus "on the relationship between the promoter and the body of investors"). The Commission, on the other hand, does not require vertical or horizontal commonality per se, nor does it view a "common enterprise" as a distinct element of the term "investment contract." In re Barkate, 57 S.E.C. 488, 496 n.13 (Apr. 8, 2004); see also the Commission's Supplemental Brief at 14 in SEC v. Edwards, 540 U.S. 389 (2004) (on remand to the 11th Circuit).
The buyers are depending on the efforts of others (the show producers and promoters) to make their cards worth more.
What is your point? That definitions are irrelevant, and anyone can claim any combination of words ?
Legal terms often have idiosyncratic definitions shaped by case law, and you can’t simply use basic English understandings of terms like “common enterprise”.
Even in plain English “common enterprise” could have a variety of meanings, and sayjng “that is not a common enterprise” is super problematic.
In the case law, there is a clear precedent of hundreds of cases of having a “promoter”, and you are “depending on the efforts of others” to tout the security, and you are “in common enterprise” with that promoter EVEN IF you have never met.
If the Yu Gi Oh franchise stops doing the show, that affects your sales. See above, the actual defintion posted… and you will see that, in fact, Yu Gi Oh and Pokemon definitely has a common enterprise in the legal definition of the term
Look through my comment history -- do I strike you as someone who dances around a point, or minces words? I am telling you how it is: you seem to be uninformed on how the US legal system works. Courts can't be used as "test suites" that you can just spin up, and legal jargon isn't the same as plain english, nor is it like code that you can just test for a binary outcome.
What you're suggesting is that I waste my time petitioning the SEC to look into Yu Gi Oh or Pokemon, which operated unregistered securities schemes 20 years ago, and they had ample opportunity to look at. I would be one of hundreds of thousands of such petitioners. They would they consult their own appetite for going after them in courts, which they clearly have none for. They care about crypto, they don't care about trading cards and children's shows, pure and simple. They are exercising their discretion in who they go after.
And by the way, the actual definition that was posted above, from their official site, is what you'd call vague:
The Commission, on the other hand, does not require vertical or horizontal commonality per se, nor does it view a "common enterprise" as a distinct element of the term "investment contract."
You could see why, in the face of such vague and amorphous language, a ton of things could be considered "a common enterprise", so the assertion "Yu Gi Oh definitely doesn't have a common enterprise" is laughable. If the SEC wanted to, they'd argue that it does. The definition is extremely vague.
The pseudo-intellectual bullshit is actually when you refuse to have consistent definitions, and just drone on about various things. New-Age practitioners or post-modern feminist or other movements have done this. Requiring people to be clear and define terms that sound vague is a basic requirement in math, science, and general rational discourse.
All shows like Yu Gi Oh, Pokemon, etc. have been running, technically speaking, unregistered securities offerings throughout the world and United States, yet the SEC does nothing. They are textbook cases of the Howey Test:
1) People (kids, in fact!) buy Yu Gi Oh trading cards
2) There is an investment of money (either they nag their parents, or they actually spend a non-trivial proportion of their own life savings)
3) With an expectation of profit. Witness how many of them don't actually use the cards, but keep them in mint condition (and as we have seen SEC successfully argue in the recent case SEC vs LBRY, if even a few people buy with expectation of profit, then ALL those sales are securities).
4) From the efforts of others -- namely the producers of the show, and their promotion of Yu Gi Oh trading cards. Trading! Perhaps even selling!
5) There is definitely a common enterprise, that isn't even decentralized. The Yu Gi Oh show is produced in Japan and shown in the USA, and drives the sales of the cards. Cancel the show, and the cards fall in price.
Yu Gi Oh Abridged series even lampooned this, to great comedic effect.
Oh those foreign-owned Japanese companies, preying on our kids selling them investment contracts! Do they really think the kids are sophisticated investors who think things through when they keep their mint-condition cards! Who will buy the top and be holding the bag after the show is canceled?
So being a textbook definition of Howey, why did the SEC never go after Pokemon, Yu Gi Oh and any of the other "merchandising" companies? How about Marvel with their mint-condition comics? Isn't that a "common enterprise" since some people buy comics for their investment value?