In brief
- The SEC issued a “no action” letter to Solana-based project, DoubleZero
- The regulator indicated that its 2Z token does not resemble a security.
- The token is set to debut on Friday alongside its mainnet launch.
The U.S. Securities and Exchange Commission issued a “no action” letter to DoubleZero on Monday, effectively blessing the project’s 2Z token days before its debut on Solana.
In a statement, the Commission said that it “will not recommend [an] enforcement action” against DoubleZero, which was established last year, and is building a high-performance fiber-optic network for blockchains while using tokens to incentivize participants.
The two-paragraph letter indicated that, based on its understanding of DoubleZero, the project’s 2Z token does not resemble a security. That marked the first time the SEC had made such an assessment in years, following a crackdown on token issuers under previous leadership.
Less than a week ago, DoubleZero submitted a 17-page letter to the Commission, asking it to weigh in on “programmatic transfers” to users participating in the network.
Former SEC Chair Gary Gensler once suggested that “everything but Bitcoin” is a security in the cryptosphere, but the agency’s latest move indicates that it thinks 2Z does not fall under its purview, according to Jack Graves, a professor at Syracuse University College of Law.
“It creates, in effect, a safe harbor based on an assumed set of facts,” Graves told Decrypt. “It allows everyone to operate with a little more clarity.”
DoubleZero’s mainnet-beta network is expected to go live on Friday. And users contributing resources to the network are set to earn 2Z as a reward, in relation to their performance and reliability. Eventually, tokenholders will be able to stake 2Z, per DoubleZero’s website.
The project was co-founded by Austin Federa, who formerly served as the Solana Foundation’s head of strategy. In a statement, he said that the decision “marks a major milestone for the U.S. digital asset industry” because it backs up the SEC’s talk of taking a more collaborative stance.
DoubleZero bills itself as a decentralized physical infrastructure network, falling under the umbrella of DePIN. The concept revolves around using blockchain to run and maintain decentralized networks of physical hardware, such as sensors.
In a statement, SEC Commissioner Hester Peirce, who is at the heart of Commission-wide efforts to modernize securities rules, described the way that DePIN projects use tokens as distinct compared to assets that it typically regulates.
“These tokens are neither shares of stock in a company, nor promises of profits from the managerial efforts of others,” she said. “They are functional incentives designed to encourage infrastructure buildout.”
The SEC has issued no action letters to crypto projects before, but Graves said the agency’s stance on Monday was still “fairly significant.”
He recalled one no-action letter in 2019, which allowed a company called TurnKey Jet to offer tokens that could be used to redeem on-demand private jet flights with clarity.
“That’s really not something that the SEC is concerned about,” he said. “But the people who are buying these tokens for private jet flights and operating Turnkey Jet can all move forward with a degree of confidence that they’re not going to have a securities violation problem.”
The SEC’s letter underscored several factors, including Turnkey Jet’s commitment to not funding its platform’s development with token sales, placing restrictions on the token’s ability to be transferred, and anchoring its marketing around the token’s functionality.
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