[brucephillips]

Can someone explain to me how his "book of the month" club example is not a security? The managerial efforts of the club managers will increase demand for participation in the club, increasing the value of the token. What am I missing?

[stale2002]

The difference is that books already exist.

It is not about whether a token can rise or fall in value. It is about whether the token represents something that can be bought right NOW, or if it represents a future promise of some sort for something that doesn't exist yet. IE, funding book publishing in this example.

[brucephillips]

> It is not about whether a token can rise or fall in value.

Yes, it is. According to the Howey Test.

[solatic]

> The managerial efforts of the club managers will increase demand for participation in the club, increasing the value of the token.

The value of the token is determined by the value of the books being shipped and the frequency and reliability of their shipment. The club managers do not affect the value of the books themselves, do not claim to affect the value of the books over time, and do not promise to provide a secondary market for those books whereby the price of the books in the future may be greater than the price of the books as delivered and thus the token is not a security representing the books. That the token itself may be privately transferred from one holder to another, without notifying or involving the token manager, doesn't make the token substantially different than, say, transferring your newspaper or magazine subscription to another person, and such subscriptions are clearly not securities.

If you did, instead, promise book token investors that there would be a secondary market for the tokens where they can easily and publicly find buyers for their tokens, and that those book club tokens would rise in value through the efforts of the book club token manager and not through the change of price, outside of the control of the book club token manager, of the underlying books, then yes, people buying the tokens deserve to understand on what principle the book club token manager's efforts will increase the value of the tokens, what risks there are associated with the manager's efforts and the promised secondary market, etc. and therefore the token is now a security.

[rficcaglia]

I think their key concern is this:

>It is especially troubling when the promoters of these offerings emphasize the secondary market trading potential of these tokens

So let's say we had an ICO for participation in a rare book club of the month. And the books themselves were trading on the secondary market. That would be ok as I interpret this.

But if the token itself is being traded and is the asset, I think that's where the SEC gets involved.

Where I am unclear is if I have a presale for the Rare Books, and the means of currency for the future delivery of the yet-to-be-acquired rare book is a token, and that token may rise in value and transfer ownership is that a security? All the token provides me is the right to receive a rare book in the future.

[vasilipupkin]

The difference is nobody would attempt to buy this participation to resell it later for a higher price

[brucephillips]

Why not?

[vasilipupkin]

Because there would be no secondary market, no exchanges, no investors, etc. but if there existed such a market and issuers of these rights talked about how these can be resold for a higher price, then it's a different story

[brucephillips]

Nothing in his description precluded those features.

[Frogolocalypse]

Because the issuers of the token (management) don't directly benefit from its use. It is the selling and profiting off the token that makes it a security. If it provides utility to the participants and doesn't provide a direct incentive to the issuer, it is not a security.

ICO's certainly bring all of these things into a discussion though, don't they?

[wmf]

The value might increase if there's an artificially capped supply, but not otherwise. If demand increases they can just issue more tokens.

[brucephillips]

So a token in an exclusive book club would be a security?