On September 29, 2025, the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (SEC) granted no-action relief to DoubleZero Foundation from the registration requirements of Section 5 of the Securities Act of 1933 (the “Securities Act”) and Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) in connection with Programmatic Transfers (as defined below) of its native 2Z token (“2Z”).[1] The response adds to the short line of Section 5 and Section 12(g) relief granted to digital asset issuers, including IMVU,[2] Pocketful of Quarters,[3] and TurnKey Jet.[4]
DoubleZero Foundation (“DoubleZero,” or the “Foundation”) is a memberless Cayman Islands foundation company established to support the development, decentralization, security, and adoption of the DoubleZero Network—a purpose-built internet optimized for distributed systems, such as blockchains.[5] DoubleZero recently introduced a decentralized physical infrastructure network (“DePIN”) to enable a central marketplace for underutilized private fiber links (the “Protocol”). The Protocol aims to improve consensus speed by leveraging the spare fiber capacity of private market participants. Market participants may contribute, and thereby potentially monetize, their unused fiber capacity, and the Protocol links the fiber together to form a single mesh network, which DoubleZero claims to allow for faster, more efficient communication (the “Network”). Blockchain validators and other participants (“Users”) can then pay fees to the Network to use the high-speed Network as an alternative to the slower traditional internet channels.
The Network is operated, administered, and developed by a diffuse network of participants:
DoubleZero plans to distribute 2Z tokens to Network participants in two ways (collectively, the “Programmatic Transfers”):
2Z also functions as the currency with which Users make payments to access the Network.[7]
In connection with the launch of the Protocol, DoubleZero requested confirmation that the Staff would not recommend enforcement action if the Programmatic Transfers were conducted without registration under Section 5 of the Securities Act and if 2Z was not registered as a class of equity securities under Section 12(g) of the Exchange Act. DoubleZero argued that, under Howey, the expectation of profits is not derived from the entrepreneurial or managerial efforts of a promoter or sponsor, but rather from the efforts of Network Providers and Resource Providers themselves, and, thus, one of the indicia of an investment contract is absent, meaning there is no investment contract-security requiring registration.
Courts apply the Howey test to determine the existence of an investment contract and, thus, a security under the federal securities laws. The Howey test examines whether there is (i) an investment of money, (ii) in a common enterprise, (iii) with a reasonable expectation of profits, (iv) derived from the entrepreneurial or managerial efforts of others.[8] If any element is not met, there is no investment contract under Howey and, therefore, no security under the federal securities laws.
DoubleZero’s argument focused on the fourth element. In evaluating whether the expectation of profits is based on the entrepreneurial or managerial efforts of others, courts will consider whether the failure or success of the enterprise depends on the “undeniably significant” managerial efforts of others—usually the issuers or promoters of the securities.[9] When the success of the enterprise instead relies on the efforts of the securities-holders themselves, there is no investment contract.[10] Where enterprises involve the efforts of multiple participants, courts will determine whose efforts constitute the “essential managerial conduct of the enterprise,” representing the “critical determinants of [its] success.”[11] In digital asset transactions, courts will often look to the “economic reality surrounding the offer and sale” and whether it would lead purchasers to have a reasonable expectation of profits.[12]
Here, DoubleZero argued that any expectation of profits from Programmatic Transfers is based on the Network Providers and Resource Providers’ own efforts, not the efforts of the Foundation or any other third party. Network Providers must expend significant time, effort, and technical expertise to participate in the Network, and, once connected, ongoing maintenance and attention is required to ensure satisfactory fiber performance and continued eligibility for rewards. DoubleZero emphasized that this is not “plug-and-play,” and Network Providers are not passive investors in this endeavor. Rather, Network Providers’ own performance is the “critical determinant” of the Protocol and Network’s success. Similarly, Resource Providers engage in activities to secure the Network, validate transactions on the DoubleZero ledger, verify Network Providers’ link performances, and compute payment distributions, among other tasks necessary for the Network to function. In doing so, DoubleZero argued, the Resource Providers themselves, not the Foundation, monitor and maintain the Network. Although the Foundation works to support the Protocol and Network, including by making grants, interfacing with policymakers, and assisting Network Providers with onboarding, such activities are fundamentally ancillary to the day-to-day services provided by the Network Providers and Resource Providers. Accordingly, DoubleZero asserted that the efforts of the Network Providers and Resource Providers constitute the “undeniably significant” managerial efforts determinative of the Network’s success.
Moreover, DoubleZero argued that there is no expectation of profits created by the Foundation. Network Providers and Resource Providers engage with the Network to potentially receive compensation for their own services, not profits derived from the efforts of the Foundation or any third party. DoubleZero’s public communications and marketing regarding 2Z “have always been, and always will be,” educational and factual, focused on technical explanations and the token’s utility. As such, DoubleZero maintained that its marketing activities do not reasonably induce any expectation of passive profits.
DoubleZero also argued that a potential secondary market for 2Z does not alter the analysis. Specifically, DoubleZero highlighted the consumptive nature of potential secondary acquisitions and again noted that the Foundation’s marketing focuses on the utility of 2Z, rather than the potential for appreciation or economic gain.[13]
Ultimately, the Staff responded that it would not recommend enforcement action if the Programmatic Transfers were conducted without registration under Section 5 of the Securities Act and if 2Z was not registered as a class of equity securities under Section 12(g) of the Exchange Act.
Although the Staff’s response is not binding, is limited to the facts presented, and did not provide any legal analysis, the relief may carry notable implications for DePIN and decentralized finance (“DeFi”) ecosystems.
The relief follows recent SEC guidance suggesting that when token distributions are used as compensation for verifiable work—such as computation or certain mining[14] or staking activities[15]—there is no offer and sale of securities. Accordingly, the relief may reflect further acknowledgment of the economic reality surrounding many DePIN and DeFi transactions, namely that market participants are incentivized by the prospect of compensation for their own services, rather than by passive investment potential.
The relief also provides insight into how the “efforts of others” element of Howey may be evaluated by the Staff in the DePIN and DeFi contexts. DoubleZero’s request highlights the distinction between passive investment schemes and DePIN and DeFi ecosystems where market participants are actively and directly engaged in operating or maintaining a network. Further, even where a foundation or other third party provides certain support services, from a Staff perspective, such efforts alone may not satisfy Howey’s “efforts of others” requirement.
Finally, the relief is consistent with courts’ and the SEC’s prior emphasis on marketing materials in evaluating the reasonable expectations of purchasers. Where marketing focuses solely on a token’s utility and consumptive use—rather than its potential for profit—the SEC or courts may be more likely to find that there is no reasonable expectation of profits under Howey.
[1] Response of the Division of Corporation Finance: DoubleZero (September 29, 2025).
[2] Response of the Division of Corporation Finance: IMVU, Inc. (November 19, 2020).
[3] Response of the Division of Corporation Finance: Pocketful of Quarters, Inc. (July 25, 2019).
[4] Response of the Division of Corporation Finance: TurnKey Jet, Inc. (April 3, 2019).
[5] Incoming No-Action Letter: DoubleZero (September 25, 2025).
[6] Provider Payments will be deferred to ensure sufficient fiber quality.
[7] 2Z will also be used for staking mechanisms that secure the Protocol. To act as a Resource Provider, one must maintain a stake of 2Z or be delegated a stake of 2Z by other 2Z holders.
[8] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
[9] SEC v. Glenn W. Turner Enters., 474 F.2d 476, 482 (9th Cir. 1973).
[10] See, e.g., Williamson v. Tucker, 645 F.2d 404, 419 (1981).
[11] SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 485 (5th Cir.1974).
[12] SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 326 (S.D.N.Y. 2023) (citing United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852 (1975)).
[13] United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 853 (1975).
[14] Statement on Certain Proof-of-Work Mining Activities (March 20, 2025).
[15] Statement on Certain Protocol Staking Activities (May 29, 2025).