The United States Securities & Exchange Commission (SEC) has issued a no-action letter to Fuse, a Solana-based decentralized physical infrastructure network (DePIN) project, effectively signaling that the business model does not violate SEC rules, is not considered a security, and therefore does not require registration with the SEC.
DePIN projects use blockchain technology to manage physical infrastructure assets, such as energy providers. Built by some of Revolut’s earliest employees, Alan Chang and Charles Orr, Fuse works by turning distributed energy infrastructure, such as rooftop solar panels, into a decentralized ‘grid’ which can be managed via the blockchain, giving operators “tokens” based on the energy contributed. The tokens can be redeemed in exchange for “Fuse Goods and Services,” such as rebates and discounts on infrastructure installation or even energy bills.
This allows for a range of use cases, such as incentivizing users to use less electricity during peak periods.
Fuse had written to the SEC on November 19, seeking confirmation that under their proposed business model, the SEC would not take any enforcement action against the project. The core concern was that the tokens being issued as part of the project might have been considered securities under SEC rules, which would impose a host of added obligations on the project. As such, much of the information Fuse submitted to the SEC concerned the utility of the tokens, making clear that they would be issued not as speculative vehicles but for specific purposes.
“By ensuring the Token maintains real-world applicability, Fuse fosters an ecosystem where the value of the Tokens is derived from its consumptive use rather than speculative investment. As additional consumers join the Fuse network and introduce additional [distributed energy resources], the grid system becomes more distributed and provides new outlets for coordinated action to address the needs of the grid.”
“In return, consumers benefit directly from lower electricity prices and usage, as well as through the incentives provided by the Tokens.”
On Monday, less than a week after Fuse sent its request to the SEC, the regulator issued a “no action” letter, essentially confirming that the system described by Fuse would not run afoul of SEC rules.
“Based on the facts presented, the Division will not recommend enforcement action to the Commission if, in reliance on your opinion as counsel, Fuse offers and sells the Tokens in the manner and under the circumstances described in your letter without registration under Section 5 of the Securities Act and does not register the Tokens as a class of equity securities under Section 12(g) of the Exchange Act,” read the letter.
The important caveat to the letter is that Fuse’s system must operate precisely as it was described to the SEC. Should the Fuse network and tokens operate differently in practice, the letter has no effect.
That said, the SEC’s response will be treated as another green light for DePIN projects operating similarly to Fuse.
In September, the SEC issued its first no-action letter regarding a DePIN project, giving the green light to Double Zero, which proposed creating a decentralized fiber network. On the day that a no-action letter was issued, SEC Commissioner Hester Pierce penned a gushy, self-congratulatory letter about how the SEC can “foster innovation without expanding our reach beyond what Congress has mandated.”
Of DePIN projects, Peirce said:
“DePIN represents a novel way of organizing human behaviour and capital resources. Rather than relying on centralized corporate structures to coordinate activity, DePIN projects enlist participants to provide real-world capabilities, such as storage, telecommunications bandwidth, mapping, or energy, through open and distributed peer-to-peer networks. To encourage participation, many of these projects distribute tokens tied to activity. The person who runs a node, provides storage, or shares bandwidth earns a reward. These tokens are neither shares of stock in a company, nor promises of profits from the managerial efforts of others. They are functional incentives designed to encourage infrastructure buildout.”
In other words, the SEC seems to have embraced DePIN with open arms.
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Source: https://coingeek.com/sec-gives-green-light-to-second-depin-project/
