A discussion - could Reddit Moons be considered a security by the SEC?

We’ve seen the recent SEC enforcement actions against Kraken’s staking, stablecoins such as Binance’s BUSD (which has caused it to stop being issued by Paxos and billions of dollars to flow out of the coin), not to mention the ongoing case against XRP. Could this sort of action be done against Moons? It depends on whether the SEC could view them as an unregistered security.

Let’s define a security. As a layperson with an interest in crypto, not a financial professional, I’ll do my best: there’s something called the Howey test that helps determine what counts as a security. “Under the Howey Test, a transaction qualifies as a security if it involves the following four elements: 1. An investment of money 2. In a common enterprise 3. A reasonable expectation of profit 4. Derived from the efforts of others” source

For a crypto to qualify as a security (and in the SEC’s eyes, an unregistered security, which opens it up to their enforcement), it would have to meet all 4 of the above criteria. A clear no would be Bitcoin: there’s no overall owner/distributor, and no profits are assured. (And if you’re like me buying the top, losses are expected). The SEC has determined most ICOs to be a yes, with more than half their 2022 lawsuits targeted at ICOs. Especially targeted by the SEC as unregistered securities are coins/tokens that raise funds via their own tokens to further develop their own coin/product.

Where do Moons fit in to this? They’re freely given, so probably don’t meet criteria #1. That said, they’re on main net now and can be purchased (and sold) on exchanges. So that could loosely be interpreted as meeting Howey #1. And #2 also, since they’re issued initially from Reddit, not a decentralized source. #3 - well, Moons are Reddit’s Community Points, designed and marketed as a governance token, which strongly makes the case that they’re not securities as there’s no advertised nor expressed expectation to profit from Moons. #4 is about whether the profit from an investment is outside of an investor’s control. Since Moons already aren’t being given with a reasonable expectation of a profit, I’d say this one doesn’t apply.

So taking it all together - it seems like currently Moons don’t pass the Howey test, so they don’t qualify as a security and shouldn’t seem likely to face the wrath of the SEC. Woohoo! That said, things can change. If Reddit started selling Moons directly, or even accepting them as payments, that could change some of the above answers. And who knows if SEC will decide to change what rules they apply to who.

(Original post got removed immediately due to too many Moons posts in top 50)

TLDR; Reddit Moons don’t currently seem to pass the Howey test - seemingly not a security at the moment and hopefully not in the SEC crosshairs!