Briefing
The U.S. Securities and Exchange Commission (SEC) Division of Corporation Finance Staff granted no-action relief to the DoubleZero Foundation, a Decentralized Physical Infrastructure Network (DePIN), regarding the programmatic transfer of its native 2Z token, effectively exempting the token from registration requirements under Section 5 of the Securities Act of 1933 and Section 12(g) of the Exchange Act of 1934. This action is a significant regulatory milestone, providing a clear, non-security compliance pathway for utility-driven tokens that are functionally decentralized and distributed to network users, thereby creating a vital precedent that validates a model for non-security token distribution. The relief is predicated on the token’s non-promotional, technical-focused public communications, which is the core detail for mitigating a reasonable expectation of passive profits.
Context
Prior to this relief, the regulatory landscape for new digital asset issuances, particularly those funding network build-out and utility, was characterized by pervasive legal ambiguity under the “investment contract” prong of the Howey Test. Developers faced the challenge of proving their tokens were not securities, often relying on post-enforcement litigation risk analysis or the slow, uncertain path of a full decentralization argument. This uncertainty created a chilling effect on innovation, as the lack of clear guidance on how to structure token sales and distributions, especially for infrastructure-focused projects, forced many to launch outside the U.S. or delay their network’s operational phase.
Analysis
This no-action letter provides a replicable compliance blueprint, fundamentally altering the product structuring and marketing guidelines for decentralized network projects. Regulated entities can now model their token distribution mechanisms, particularly those involving programmatic transfers for network usage or contribution, after the specific facts presented by the Foundation. The critical compliance system change involves a mandatory shift in external communications, requiring issuers to strictly focus on the token’s technical utility and network function rather than its investment value, thus eliminating the “reasonable expectation of profit” element of the Howey Test. This action provides a critical update for legal teams, confirming that a sufficiently decentralized network with utility-based programmatic transfers can operate outside the federal securities framework, provided the marketing and communications strategy is fully aligned with the technical reality.
Parameters
- Regulatory Instrument ∞ No-Action Letter (A formal statement that staff will not recommend enforcement action.)
- Statutory Exemption ∞ Section 5 and Section 12(g) (Relief from registration requirements under the Securities and Exchange Acts.)
- Core Legal Principle ∞ Absence of Expectation of Passive Profits (The central element of the Howey Test that the SEC Staff determined was not met.)
- Token Use Case ∞ Decentralized Physical Infrastructure Network (DePIN) (The specific category of utility-focused network the relief was granted to.)
Outlook
This SEC Staff action is a powerful signal that the agency is willing to provide a practical, non-enforcement pathway for legitimate, utility-driven innovation, setting a critical precedent for the entire DePIN sector and other functional decentralized networks. The next phase will involve legal teams and compliance officers meticulously integrating the letter’s specific requirements into their existing frameworks, particularly regarding marketing and token distribution logic. This guidance may also serve as a template for future formal rulemaking, potentially leading to a broader safe harbor framework for utility tokens, which would unlock significant investment and development within the U.S. digital asset ecosystem.
