Hidden in the [terms of service agreement](https://www.redditinc.com/policies/community-points-terms-of-service) for “Community Points” is this nugget:
>Community Points have no monetary value (i.e., are not a cash account or equivalent), cannot be sold to other users, and cannot be exchanged for cash or for any other goods and services outside of Reddit’s virtual goods or services
This would not hold up in court. You can’t create an ERC20, name it “MOONS”, market it as “hardcapped” and “deflationary”, distribute them to a subreddit about cryptocurrency speculation and pretend it’s not meant to have real monetary value. If they didn’t want it to not have real world value, they would have made it a closed system that can only be used within the parameters of [reddit.com](https://reddit.com), not an ERC20 token that can be swapped for dollars.
In my opinion, Moons are unregistered securities as the law currently stands. In 1946, the Howey Test was invented to determine what a security is. If all four of these are checked, then it is a security:
1. An investment of money (ERC20 tokens are traded on exchanges)
2. In a common enterprise (Reddit.com)
3. With the expectation of profit (the tokens are tradable for dollars, are marketed it as “deflationary”, they named the token: “Moon”)
4. To be derived from the efforts of others (Reddit is actively developing the Moon token)
Because we can swap moons P2P between users using proprietary software created by reddit, reddit is also blurring the lines between being just the issuer and a brokerage.
Reddit fails to disclose that US citizens who receive Moons are required by law to check “Yes” on the box on your taxes that says “Have you received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency in the past year?”.
Reddit fails to ask for KYC, fails to report token distribution information to the IRS, and fails to provide users the proper tax forms.
In conclusion, Reddit is very close to operating as an illegal, unlicensed brokerage, they are offering unregistered securities and they are not in compliance with IRS.
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