Slam Dunks Might Be Securities

Imagine a video game. There’s an online multiplayer video game, MattQuest, made and run by a video-game company, QuestCo. In the game you play a character, and the character can wear a hat. QuestCo periodically releases exciting new limited-edition hats for characters, which you can buy, from the company, with real money. You give them your credit card and they bill you $10 and now your character has a purple hat or whatever. Some hats are common and cheap; others are rare and expensive.

There is an active secondary market for hats, in which players can sell the hats they own or buy hats from others, for real money. This market is administered by QuestCo, and QuestCo does not allow trading outside of its own platform. So someone who has a rare teal hat might list it for sale for $1,000, and if you covet that hat for your character you can pay $1,000 for it. You use your credit card or a bank transfer to put $1,000 into your account at QuestCo, and then you click to buy the hat, and QuestCo takes the $1,000 out of your account and transfers it to the seller’s account. Actually QuestCo collects a 5% fee on the trade, so the seller gets $950. She gets $950 in her QuestCo account, that is. If she wants to take that money out — to put it in her bank account — QuestCo will send her a bank transfer, but it will take another fee for cashing her out. Also maybe there will be a delay of a few weeks between when she asks to withdraw the money and when she gets it. QuestCo is a video-game company, not a bank, and it might not be super-efficient at processing withdrawals.