The recent decision by the U.S. Securities and Exchange Commission (SEC) regarding DoubleZero’s 2Z token has significant implications for decentralized networks. On September 29, 2025, the SEC issued a no-action letter, allowing DoubleZero to proceed with its token distribution model for participants in the decentralized physical infrastructure network (DePIN) without facing enforcement action. This marks a milestone as the SEC publicly permits a DePIN token to operate outside securities law, providing clarity on the distinction between function-based token rewards and traditional investment offerings.
DePIN Tokens and Securities Regulation
DoubleZero’s DePIN model operates on the premise of participants contributing real-world services, such as network connectivity and computational work, in exchange for tokens. Unlike centralized networks, DePIN operates without a central management structure and distributes tokens based on network rules. The 2Z token is issued as compensation for Network Providers delivering connectivity and Resource Providers computing payment calculations. The SEC’s determination that the 2Z token does not meet the criteria of a security stems from its direct link to user activity rather than passive investment or speculation.
Not Meeting the Howey Test
The SEC’s decision hinges on the application of the Howey Test, which assesses whether an asset qualifies as an investment contract. In the case of DoubleZero, the SEC concluded that the 2Z token is distributed solely as compensation for services provided, not as an investment opportunity. Participants earn tokens through active contributions to network tasks, eliminating reliance on others’ efforts for financial gain and failing to satisfy the Howey Test.
Operational Incentives vs. Financial Instruments
DoubleZero’s 2Z token serves as an operational incentive for network growth rather than a speculative asset for financial gain. The token distribution model is automated and tied to objective network tasks, distinguishing it from traditional securities classifications. The use of Programmatic Transfers ensures tokens are issued through a predefined algorithm, eliminating managerial discretion and guaranteeing tokens are earned through measurable activities with no promise of future profit.
Commissioner Peirce’s Perspective
Commissioner Hester M. Peirce emphasized the limits of the SEC’s authority in regulating decentralized infrastructure models. She highlighted that DePIN networks like DoubleZero differ from traditional securities in form and function, organizing contributors to build physical services using token-based rewards without centralized corporate structures typically associated with capital-raising schemes.
Distinguishing DePIN Incentives from Traditional Fundraising
The SEC’s decision underscores the distinction between token-based rewards for network activity and investments aimed at funding a company’s operations. In DoubleZero’s model, tokens are earned through specific tasks under network rules, with no involvement of investors contributing funds in exchange for future profits. The absence of ownership rights, equity features, or contractual profit mechanisms in the 2Z token further solidifies its exemption from federal securities regulation.
Programmatic Transfers and Decentralized Discretion
DoubleZero’s token issuance system operates entirely on programmable transfers, removing human discretion and ensuring rewards are tied to actual output rather than subjective decisions. This approach separates DePIN tokens from financial instruments falling under SEC jurisdiction, as tokens are distributed based on performance and computation rather than speculative sales.
Legal Foundation Based on Functional Design
DoubleZero’s legal argument centers on the operational role of the 2Z token in supporting decentralized infrastructure, emphasizing that value is directly tied to services provided rather than assumed investor intent. The SEC’s acceptance of this analysis confirms that the token’s functional use case does not warrant registration under existing securities laws, providing a regulatory pathway for similar projects utilizing blockchain for decentralized infrastructure coordination.
Conclusion
The SEC’s decision regarding DoubleZero’s 2Z token sets a precedent for function-based token incentives operating outside the securities framework. By linking token rewards to service performance, avoiding speculative investment, and adhering to automated rules, projects like DoubleZero can navigate regulatory challenges while fostering innovation in decentralized networks. This fact-based approach ensures compliance with statutory authority and safeguards investor protections embedded in securities law.