The first of what may be a series of crypto no-action letters supports the view that programmatic token distributions serving as network incentives are not securities.

By Jenny Cieplak, Paul M. Dudek, Zachary Fallon, Stephen P. Wink, Hank Balaban, Daphne Lambadariou, and Deric Behar

On September 29, 2025, the SEC Division of Corporation Finance issued a no-action letter (NAL) stating that it would not recommend enforcement against a certain foundation company and blockchain token issuer (the Foundation) under Section 5 of the Securities Act of 1933. Further it would not require registration under Section 12(g) of the Securities Exchange Act of 1934 if its programmatic token transfers are conducted in the manner and under the circumstances described in its request letter.

According to the request letter, the Foundation’s decentralized physical infrastructure network (DePIN, or the Network) “is a set of smart contracts that provide a framework for permissionlessly adding high-performance network connectivity, which others can pay for and use.” Furthermore, “[t]here is no central promoter or sponsor responsible for operating the Network” that supports three programmatic token flows to facilitate network functioning:

1. User Payments (fees paid by market participants to use the Network and transmit communications over the Network);
2. Provider Payments (programmatic distributions of User Payments to Network providers who supply high-performance connectivity to the network); and
3. Computation Payments (new token emissions used to reward resource providers for protocol computations, such as calculation of provider payment amounts).

The Staff itself provides no legal analysis in the NAL, but issued the NAL wholly based on the facts and analysis presented by the Foundation’s counsel in the request letter, in which the requestor asserts that the programmatic distribution of tokens for Provider Payments and Computation Payments in accordance with Network rules (collectively, Programmatic Distributions) does not satisfy the fourth prong of the Howey test. The Programmatic Distributions depend on the network providers’ and resource providers’ own efforts, rather than the efforts of any promoter or manager. The Staff noted that “[a]ny different facts or conditions might require the Division to reach a different conclusion.”

This is the first no-action relief granted by SEC Staff for a digital asset token since 2020 (for information on previous digital asset-related NALs, see Latham blog posts here, here, and here).

Legal Analysis

The request focuses on whether the Programmatic Distributions constitute an “investment contract” (and thus a security) under US securities law, specifically the longstanding Howey test. Key to the Howey test is that any expectation of profits be derived from the entrepreneurial or managerial efforts of others. The request letter asserts that Programmatic Distributions should not be considered securities transactions requiring registration for the following reasons:

• Economic Reality: The token was designed to facilitate payments for services within a utility network, not for investment or capital-raising. Programmatic Distributions are intended to deter speculation and limit participation to actual users.
• Marketing: The Foundation’s marketing emphasizes the utility of the token for network use, not as an investment with an “expectation of profits.” There are no promises of passive returns resulting from any promoters’ or third parties’ “undeniably significant” managerial efforts.
• Secondary Market Considerations: According to the request letter, the potential for a secondary market in the network’s tokens does not change the analysis, as any appreciation in token value would be due to market forces and network effects and not the managerial efforts of the Foundation or any other party.
• No Reliance on Managerial Efforts of the Foundation: The Foundation’s role is described as limited, ministerial, and ancillary, focused “on educating the industry, coordinating among stakeholders and encouraging continued development of the Network by various contributors.” There is no reliance on the “efforts of others” because neither the Foundation nor any third party manages the network, sets terms, determines rewards, or has discretion over payments. All payments are determined in accordance with network rules by smart contracts based on measurable Network participant contributions.
• Essential Efforts Are Those of the Recipients: The recipients of the tokens (network providers and resource providers) earn tokens as compensation for their own significant, ongoing efforts to install and operate the physical infrastructure. Network providers must install, operate, and maintain physical fiber links, while resource providers perform computational work to maintain the network. Their token rewards are directly tied to their own performance and contributions, not to the actions of a central promoter, manager, or third party.
• No Passive Participants: The letter distinguishes the facts under consideration from cases where the SEC or courts found securities due to passive investment and reliance on a promoter’s efforts. Here, as described in the letter, participants are not passive; their own efforts are the “critical determinant of [their] success.” The request letter compares the Network rewards to rewards flowing to miners in a Proof-of-Work blockchain, previously determined by the Staff to not involve the offer and sale of securities (for more information, see this Latham blog post).

Commissioner Peirce Supports the NAL

Commissioner Hester M. Peirce issued a statement in support of the NAL, noting that “[t]he economic reality of DePIN projects differs fundamentally from the capital-raising transactions Congress charged [the SEC] with regulating.” Commissioner Peirce argues that the SEC must engage with innovators, understand their models, and apply regulations thoughtfully, as “Congress created the [SEC] to oversee the securities markets, not to regulate all economic activity.” Further, Commissioner Peirce 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 the securities laws.

Conclusion

The request letter and NAL frames a utility-first path for programmatic token distributions, more generally, based on economic realities, measurable participant effort, de minimis (i.e., ministerial and ancillary) managerial effort, and non‑discretionary, code‑based reward mechanics.

Consistent with prior Staff positions emphasizing functionality over speculation, and with case law focusing on what token purchasers are objectively led to expect, the features of the DePIN in question (and presumably similar blockchain protocols) would place programmatic token flows outside the scope of the Howey Test and not implicate the securities laws.

The NAL is the latest development in the SEC’s crypto-friendly approach under the Trump administration, providing the digital asset ecosystem with incremental regulatory clarity, reducing enforcement risk, and promoting innovation and capital formation. We expect this to be the first of several such NALs to be issued by the Staff.

Follow this and other critical developments on Latham’s US Crypto Policy Tracker.