The first of what may be a series of no-action letters on cryptocurrencies supports the view that token distributions that serve as incentives for the network are not securities.
by Jenny Seplak, Paul M. Dodik, Zachary Fallon, Steven P. Wink, Hank Balaban, Daphne Lambadarioand Derek Behar
On September 29, 2025, SEC Division of Corporate Finance Issued The No Action Letter (NAL) states that it will not recommend enforcement against a particular enterprise company and the issuer of the blockchain token (the Corporation) under Section 5 of the Securities Exchange Act of 1933. Furthermore, it will not require registration under Section 12(g) of the Securities Exchange Act of 1934 if token transfers are made in the manner and under the circumstances described in its book. Request letter.
According to the request letter, the Enterprise Decentralized Physical Infrastructure Network (DePIN, or network) “is a set of smart contracts that provides a framework for adding high-performance network connectivity without permission, which others can pay for and use.” In addition, “[t]”There is no central promoter or sponsor responsible for running the network,” which supports three token flows to facilitate the network’s operation:
- User payments (fees paid by market participants for using the network and transmitting communications over the network);
- Provider Payments (programmatic distributions of user payments to network providers that provide a high-performance connection to the network); and
- Computational Payments (new token issuances used to reward resource providers for performing protocol calculations, such as calculating provider payment amounts).
The staff themselves do not provide any legal analysis in the NAL, but they issued the NAL based on the facts and analysis provided by the Foundation’s counsel in the request letter, in which the applicant asserts that the programmatic distribution of tokens for provider payments and account payments in accordance with the rules of the network (collectively, automated distributions) does not satisfy the fourth prong of Amateur exam. Programmed distributions rely on the efforts of network providers and resource providers, rather than the efforts of any promoter or manager. The staff noted:[a]Any different facts or circumstances may require the department to reach a different conclusion.
This is the first no-action exemption granted by the SEC staff for a digital asset token since 2020 (for information on previous NALs related to digital assets, see Latham’s blog posts) here, hereand here).
Legal analysis
The order focuses on whether programmed distributions constitute an “investment contract” (and therefore a security) under U.S. securities law, specifically long-term investment contracts. Amateur exam. key to Amateur The test is that any forecast of profits is derived from the entrepreneurial or managerial efforts of others. The Demand Letter emphasizes that programmed distributions should not be considered securities transactions requiring registration for the following reasons:
- Economic reality: The token is designed to facilitate payment for services within the utility network, not for investment or raising capital. Automated distributions are intended to deter speculation and limit participation to actual users.
- marketing: Enterprise marketing emphasizes the utility of the token for using the network, rather than as an investment with “expectation of profits.” There are no promises of negative returns resulting from management efforts of “undeniable importance” to either the promoters or third parties.
- Secondary market considerations: According to the order letter, the possibility of a secondary market in network tokens does not change the analysis, as any rise in the value of the token will be due to market forces and network effects and not the administrative efforts of the Foundation or any other party.
- Not relying on the organization’s administrative efforts: The Foundation’s role is described as limited, ministerial and subordinate, and focuses on “educating the industry, coordinating stakeholders and encouraging the continued development of the network by various stakeholders”. There is no reliance on the “efforts of others” because neither the Foundation nor any third party manages the network, sets the terms, sets the rewards, or has discretion over the payments. All payments are determined according to the network’s rules through smart contracts based on measurable contributions of network participants.
- The primary efforts are the efforts of the recipients: Token recipients (network providers and resource providers) receive tokens as compensation for their significant and ongoing efforts to install and operate the physical infrastructure. Network providers must install, operate, and maintain the physical fiber links, while resource providers perform the computational work to maintain the network. Their token rewards are directly linked to their performance and contributions, and not to the actions of the central promoter, manager or third party.
- There are no passive participants: The letter distinguishes between the facts at hand and cases in which the SEC or courts have found securities to be due to passive investment and reliance on promoter efforts. Here, as explained in the letter, the participants are not passive; Their own efforts are the “decisive determinant.” [their] Success.” The demand letter compares the network’s rewards to the rewards flowing to miners on the proof-of-work blockchain, which staff had previously specified as not involving the offer and sale of securities (for more information, see Latham Blog post).
Commissioner Pearce supports NAL
Commissioner Hester M. Pierce issued a statement In support of NAL, stating that “[t]The economic reality of DePIN projects differs fundamentally from capital raising transactions mandated by Congress [the SEC] With regulation.” Commissioner Pierce believes that the SEC must engage with innovators, understand their models, and apply regulations thoughtfully, since “Congress created [SEC] “To supervise securities markets, not to regulate all economic activity.” Furthermore, Commissioner Pierce sees the no-action letter as a positive example of allowing blockchain infrastructure providers to focus on project development rather than on the complexities of securities laws.
conclusion
The Demand Letter and NAL frame a benefit-first path for token distributions, generally, based on economic realities and measurable participant efforts, minimum (i.e. ministerial and ancillary efforts), administrative efforts, and code-based non-discretionary reward mechanisms.
In keeping with previous staff positions emphasizing functionality rather than speculation, and with case law focusing on what token buyers would objectively expect, the DePIN features in question (and putatively similar blockchain protocols) would place programmatic token flows outside the scope of Amateur Testing and non-involvement of securities laws.
The NAL is the latest development in the SEC’s cryptocurrency-friendly approach under the Trump administration, providing the digital asset ecosystem with increased regulatory clarity, reducing enforcement risk, and encouraging innovation and capital formation. We expect this to be the first of many NALs issued by the staff.
Follow this and other important developments in Latham US encryption policy tracker.
