The U.S. SEC has granted Fuse Energy a no-action letter, confirming its ENERGY token is not a security under specific conditions. This marks a significant compliance breakthrough for DePIN (Decentralized Physical Infrastructure Network) projects.
Key Points:
- Compliance Advantage: The ENERGY token is approved because users earn it by contributing energy resources (e.g., solar panels, reducing peak usage), not as an investment. This aligns with the “distributed effort” concept, avoiding the “investment contract” definition under the Howey Test.
- Regulatory Shift: This is the SEC’s second such approval for a DePIN project, signaling a move toward conditional compliance guidance for utility tokens.
- Trade-offs: Fuse sacrifices business model flexibility and token liquidity. Users cannot freely trade tokens, and any changes to its model could void the SEC’s approval.
- Ongoing Challenges: Fuse still faces local energy regulations, licensing hurdles, and competition from traditional utility companies.
The approval validates a specific utility token model but does not eliminate all regulatory risks.
Author: Jay, PANews
Another cryptocurrency project has received the green light from the Securities and Exchange Commission (SEC). The SEC recently issued a No Action Letter (NAL) to Fuse Crypto Limited (hereinafter referred to as Fuse) with respect to its native token, Energy Dollar, formally confirming that under certain issuance and sale structures, the ENERGY Token will not be considered a security.
This development not only gives Fuse a compliance advantage, but also means that the DePIN (Decentralized Physical Infrastructure Network) path can complete the compliance puzzle more easily compared to other paths.
The SEC has approved Fuse to issue ENERGY tokens
On November 24, the SEC issued a decisive NAL (Non Permissible Decision) regarding Fuse’s ENERGY token. This decision also demonstrates the SEC’s systemic shift in regulatory stance, especially toward blockchain projects that aim to solve real-world problems.
Fuse Energy is a DePIN project focused on energy technology innovation. Its core business is a Solana-chain power grid, which incentivizes household users to install and use DERs (distributed energy resources), such as rooftop solar panels, electric vehicle charging stations, and home energy storage batteries, through a rewards system. Fuse aims to coordinate these decentralized resources, helping to decongest the power grid and manage load pressure, thus relieving network congestion.
NAL stated that as long as Fuse strictly adheres to the issuance and sales methods described in its November 19 filing, the SEC will not take enforcement actions against it under Section 5 (Issuance Registration) of the Securities Act of 1933 and Section 12(g)(Securities Registration) of the Exchange Act of 1934.
The ENERGY Code Compliance Exemption is not an isolated case. Multicoin Capital, which has invested heavily in the DePIN sector, led funding rounds of $12 million and $28 million for the DePIN Fuse and DoubleZero projects, respectively. Coincidentally, Fuse’s NAL is the second such document issued by the SEC in a short period, after the DoubleZero token 2Z obtained a similar NAL in September. Multicoin Capital may have recognized the significant compliance potential of these two DePIN projects early on, or successive NAL grants may have been facilitated by Multicoin Capital.
These continued positive signals indicate that the SEC’s regulatory approach is shifting from past enforcement actions to conditional compliance guidance. With the support of its new leadership, the SEC is trying to create a “token classification” to differentiate between utility tokens and investment contracts. The emergence of NAL provides regulatory protection for projects with utility value. This regulatory clarity could significantly reduce compliance risks in the DePIN market.
The cost of complying with the ENERGY Code would be a sacrifice of business model flexibility.
NAL is an administrative decision. The SEC will conduct an in-depth review of Fuse Energy’s business model based on the fundamental standards of U.S. securities law, specifically the Howey Test, and will issue a ruling based on the specific facts and circumstances.
Therefore, NAL has strict restrictions. The SEC stated in its announcement that any different facts or circumstances could lead management to different conclusions. This language would impose long-term compliance restrictions on Fuse Energy, effectively “locking in” Fuse’s business model, token issuance method, and marketing strategy in its SEC filings. Any attempt by Fuse to define the ENERGY Token as an investment contract, or to imply that its value will increase due to project management efforts, would pose a legal risk and could result in NAL revocation by the SEC.
In short, such compliance will sacrifice flexibility in business models.
The key to Fuse Energy’s circumvention of the Howey test lay in the fact that the project’s token economic model caused it to fail to meet the fourth element of the investment contract, or specifically the reasonable expectation that profits would come from “the efforts of others.”
Fuse Energy’s basic argument is that users receive ENERGY tokens for consumption and rewards, not for investment.
- How to acquire: Users do not directly invest money to earn ENERGY tokens, but rather participate in network activities and contribute material resources, including reducing energy consumption during peak hours, using electric vehicle charging stations, and storing solar energy. This makes the ENERGY Tokens incentive more like a “loyalty reward” for environmentally friendly behavior.
- Distributed Efforts: In the Fuse Energy architecture, the increase in the value of a token depends primarily on the efforts and contributions of a large number of participants (for example, deploying and operating users’ devices), and not only on the central management and efforts of the Fuse team. This legal justification for “distributed effort” may lay a strong foundation for regulatory compliance for the DePIN project.
To further decouple the token from the financial success of the project, Fuse adopted a disinvestment approach in designing the value of its token. The redemption value of the ENERGY token is tied to Fuse’s profit margin and the average market price of the token at the time of its use. This design aims to ensure that energy is seen as an immediate token of utility, encouraging users to consume it quickly (for example, to obtain rebates on electricity or carbon offsets). Since the value of the ENERGY token does not depend on Fuse’s financial success, users are less motivated to store tokens in anticipation of future performance gains.
Combined, these factors led the SEC to determine that the ENERGY Token did not meet the definition of an investment contract.
Beyond code compliance, Fuse still faces regulatory challenges on the business side.
NAL has temporarily resolved the compliance risks of treating ENERGY tokens as securities, but Fuse Energy is now not completely worry-free. Fuse sacrificed symbolic liquidity for compliance. Users cannot transfer tokens freely, and exit channels for funds are limited and individualized, which greatly reduces the attractiveness of the asset.
If Fuse Energy becomes complacent and changes its products or token mechanisms (such as opening secondary market trading or changing pricing strategies), or if its actual operations do not match the stated facts, NAL will not be legally binding. The SEC could withdraw its request and initiate enforcement proceedings at any time, posing the risk of regulatory backlash.
Therefore, despite the fact that the ENERGY token has been “de-securitized,” Fuse still has the responsibility to increase its operational transparency, disclose project risks, and enhance education to market participants to ensure that users do not misunderstand it as a traditional investment contract.
It is worth noting that the energy sector is a highly localized market, and is typically subject to strict regulation by state and local utility commissions.
- Regulatory Compliance and Licensing: Fuse will likely expend significant resources to handle complex administrative procedures to obtain the licenses and approvals required to operate in different states or territories.
- Potential political constraints from utility companies: Traditional utility companies typically have a mature customer base, infrastructure, and political influence. These companies may leverage their brand advantage to disrupt the growth of retail providers such as Fuse and competitors, and further restrict development space for non-utility developers through the implementation of regulatory policies related to renewable energy.
The SEC’s approval of Fuse represents a rational return for regulators to the niche market for “utility tokens.” For the industry, this is a shot in the arm and a wake-up call: compliance often comes at the cost of sacrificing investment value and liquidity. While celebrating this regulatory breakthrough, the market needs to clearly acknowledge that this is merely an endorsement of a specific business model, and not a euphoria leading to a complete “democratization” of cryptocurrencies.
