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I don’t want to blame you for a situation that Apple intentionally made confusing, but there is no reason you should have bought that device in the last four or so years. It was pretty clearly on the road to being obsolete sooner than later, and unsurprisingly it lost support pretty much the day Apple stopped selling it.

That's contrary to this sentiment and how Apple has handled support of other devices.

https://news.ycombinator.com/item?id=34514043

I know, which is why it's particularly egregious.

The Series 3 is 5 years old and was already struggling with upgrades.

E2EE requires all devices to be updated to the latest version of the OS

I have the same watch, same issue. Just discovered it tonight while trying to enable E2EE. Presumably it’s because the 3 doesn’t receive watchOS updates anymore as a discontinued product, so it can’t participate in the new E2EE “pipeline”