- within Wealth Management, International Law and Law Practice Management topic(s)
For years, the Securities and Exchange Commission's "no-action letters" have been a vital channel for innovators seeking clarity on whether new business models would draw enforcement. But in the fast-moving world of digital assets, where the line between innovation and illegality is often blurry, the agency's silence under President Biden left market participants stranded.
That ended in late September, when the SEC issued its first digital-asset-related no-action letter in nearly five years, to the DoubleZero Foundation. The move signals a long-awaited reopening of dialogue between regulators and crypto developers and a potential shift toward a more predictable framework for blockchain-based innovation.
While no-action letters bind only on their specific facts, this one offers much-needed insight into how the SEC may now distinguish genuine technological utility from unregistered securities offerings.
- The SEC's Previous No-Action Letters Related to Digital Assets
No-action letters are issued by the SEC in response to questions from market participants about whether a particular product, service, or action would constitute a violation of the federal securities law. For companies navigating fast-evolving technologies like blockchain, they can be the only practical way to obtain early regulatory clarity on a contemplated product or service short of an enforcement action.
If the SEC agrees that a proposed blockchain product or service would not constitute a violation of securities law, the relevant operating division of the SEC will issue a letter stating that it "would not recommend that the Commission take enforcement action against the requester based on the facts and representations described in the individual's or entity's request."
Securing such a letter can be immensely valuable for the company that receives it and often provides a rare window of insight for the entire digital-asset industry into how the SEC interprets the law in practice.
The SEC issued three no-action letters related to digital assets during the first Trump Administration. The first was issued to TurnKey Jet, Inc. on April 3, 2019, the same day the SEC staff issued a "Framework for 'Investment Contract' Analysis of Digital Assets." TurnKey Jet is an aircraft charter service that sought to introduce a token-based membership program in which users could redeem tokens for pre-paid private charter flights.
The second was issued on July 2, 2019, to Pocketful of Quarters, Inc., which sought to create a single in-game currency that video gamers can use across a variety of video games, rather than having to purchase in-game currency unique to each game.
Finally, IMVU received a no-action letter on Nov. 19, 2020, with respect to its plan to issue "VCOIN" to users of its online, avatar-based social media platform that they could use to pay for in-universe virtual goods and services. Each of these tokens thus operated as "utility" tokens, a term for a digital asset that provides holders with access to a specific product, service, or function offered by the platform.
In each of the TurnKey, Pocketful of Quarters, and IMVU no-action letters, the SEC explained that it would not recommend enforcement if the recipients offered the respective tokens without registration under Section 5 of the Securities Act or registering the token as a class of equity securities under Section 12(g) of the Exchange Act.
In each letter, the SEC "particularly note[d]" several aspects of the digital asset that apparently shaped its determination. For example, in each case, the SEC noted that the marketing for each token would emphasize its utility for a specific purpose, rather than its speculative value.
The SEC also noted that none of TurnKey, Pocketful of Quarters and IMVU were using token sales to build or finance the respective platforms, as those platforms would all be fully developed and operational before any tokens were sold, and thus could be used immediately for their intended purpose upon sale. The tokens were all also issued with a fixed price and the value of the token was equal to that price.
The SEC under President Biden was notably more aggressive toward the digital-asset industry than it had been during President Trump's first term, and it did not issue any no-action letters related to digital asset products or services. But the day after President Donald Trump's inauguration, then-acting SEC chairman Mark Uyeda announced the formation of "a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets."
Shortly thereafter, on Feb. 4, 2025, SEC Commissioner Hester Pierce, appointed to lead the task force, issued a statement outlining the task force's priorities—one of which was to "welcome[] requests for no-action letters" from digital-asset market participants with the goal to "identify some areas that fall outside the Commission's jurisdiction."
- The DoubleZero Network
DoubleZero took Pierce up on her offer and submitted a request for a no-action letter with respect to its digital asset. DoubleZero describes itself as "a memberless Cayman Islands foundation company," that was "formed to support the development, decentralization, security and adoption of the DoubleZero Network."
As set forth in its no-action request, the DoubleZero network operates, essentially, like a private internet and is intended for blockchain users, such as "validators, RPC node operators, searchers, builders, and sequencers." Owners of unused or underused private fiber-optic networks can sell access to their networks in a way that bypasses the relatively slower speeds of the public internet. The network has several players:
- Users, who pay to make use of the network;
- "Network Providers," whose fiber-optic cables and related hardware are used for the network;
- "Resource Providers," who administer and maintain the network, such as by tracking User transactions and overseeing the smart contracts that calculate, collect, and disburse fees and payments for use of the network;
- DoubleZero itself, which "educates the public, coordinates communications among various other ecosystem stakeholders and supports the decentralization and development" of the network but, importantly, "does not manage or operate" the network itself; and
- Several independent technology contributors, including Malbec Labs, Jump Crypto, Anza, and Galaxy Digital.
Undergirding the network is the 2Z token. Users make payments for use of the network in 2Z or the native token for integrated blockchains, such as SOL on the Solana blockchain. The Network Providers are in turn paid out of these user fees for the use of their cables and hardware in 2Z.
Those payments are programmatically calculated based on "each Network Provider's contribution to the Network's overall performance (through increased bandwidth and reduced latency compared to the public internet and other Network Providers)" and "depend[] on that Network Provider's own utility in the Network—not the amount of 2Z they hold, nor the entrepreneurial efforts of any third party." Resource Providers are paid for their administrative efforts in maintaining the network.
Unlike Network Providers, Resource Providers are paid in newly minted 2Z, not 2Z from User fees, but both Network Providers and Resource Providers are paid via "Programmatic Transfers," which are mechanistically calculated and "determined by those parties' own efforts, not by the Foundation's decisions or actions." Finally, the Network Providers and Resource Providers will be able to sell their 2Z back to Users on a secondary market, which starts the cycle over again.
- DoubleZero No-Action Letter
In its request for a no-action letter, DoubleZero argued that "the proposed offer and sale of 2Z... will not involve the offer and sale of a 'security' within the meaning of" the Securities Act or the Exchange Act. Under the familiar Howey test, a transaction constitutes a security where there is "(i) an investment of money (or valuable consideration), (ii) in a common enterprise (either vertical or horizontal), (iii) with a reasonable expectation of profits, (iv) to be derived from the entrepreneurial or managerial efforts of promoters or sponsors."
DoubleZero argued that 2Z does not satisfy the fourth prong, and is therefore not a security, because Network Providers and Resource Providers "are not motivated to acquire tokens by an expectation of profit based on the managerial efforts of others."
The fact and amount of Network Providers' 2Z payments are "Network Provider's own efforts and their contributions to the Network," which consist of the "significant efforts" required for "[c]onnecting to the Network and maintaining a link."
Similarly, Resource Providers "earn payments by contributing to the perpetuation of the Network" such as "activities to secure the network, validate transactions on the DoubleZero Ledger, verify Network Providers' link performances and compute payment distributions, among other functions necessary for the network to function." And, critically, DoubleZero argued that neither of these payment arrangements depends on the "entrepreneurial or managerial efforts" by DoubleZero itself or other participants in the network.
The SEC was persuaded and, on Sept. 29, 2025, issued a no-action letter with respect to the 2Z token, informing DoubleZero that "the Division will not recommend enforcement action
to the Commission if, in reliance on your opinion as counsel, Programmatic Transfers that are conducted in the manner and under the circumstances described in your letter are not registered under Section 5 of the Securities Act and 2Z is not registered as a class of equity securities under Section 12(g) of the Exchange Act."
Unlike the TurnKey, Pocketful of Quarters and IMVU no-action letters, which identified particular factors that led the SEC to its decision, the DoubleZero no-action letter simply states that the SEC would not recommend an enforcement action and offers no explanation as to why.
Commissioner Pierce filled that void in a companion statement issued the same day in which she concludes that 2Z is "distinguishable from more traditional fundraising transactions where the now ubiquitous Howey Test may capture uncommon instruments that have the essential attributes of a security."
In concluding that "the Howey Test is not satisfied," she states that DoubleZero "allocate[s] tokens as compensation for work performed or services rendered, rather than as investments with an expectation of profit from the entrepreneurial or managerial efforts of others."
She further notes that DoubleZero is "not selling or distributing tokens to finance additional development from investors attracted solely by the prospect of investment returns" but instead "programmatically distribute[s] such tokens to users who participate in the network in accordance with network rules."
Pierce's companion statement to the DoubleZero no-action did more than just expand on the SEC's legal reasoning behind its determination. Pierce took the opportunity to "to reflect on how we, as regulators, can foster innovation without expanding our reach beyond what Congress has mandated."
She explained that "[b]lockchain technology cannot reach its full potential if we force all activities into existing financial market regulatory frameworks" and that, for new projects like the DoubleZero network, "[m]arkets, not financial regulators, should determine the success of such projects."
This appears to be in keeping with the Trump Administration's interest in not letting aggressive regulation stifle innovation in the digital-asset space, and it also suggests that requests for no-action letters relating to blockchain products and services may get more traction than they have historically.
Indeed, the day after the DoubleZero no-action letter was issued, the SEC issued another no-action letter with respect to registered advisers or regulated funds that keep digital assets at certain state-chartered financial institutions.
- Conclusion
The DoubleZero no-action letter suggests a few paths forward for blockchain companies hoping to withstand SEC scrutiny. Most importantly, it suggests that market participants considering whether to issue a token should design for use, not speculation, and if the token mechanism primarily rewards active infrastructure participation (not passive holding), that token stands a better chance of avoiding an SEC enforcement action.
Federal regulators are signaling that not every transaction in the digital-asset space is a securities offering, but to avoid securities enforcement, companies still need to ensure their business model does not incorporate the hallmarks of investment contracts.
Additionally, an ounce of prevention may be worth a pound of cure: the no-action letter path remains narrow, but engaging the SEC or adopting conservative design features is smart risk management.
--
This article first appeared in the November 5,2025, edition of the "New York Law Journal" © 2025ALM Global Properties, LLC.
Resources
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
