Key Takeaways:
- SEC approved Fuse Energy's ENERGY token, setting a precedent for DePIN projects.
- Compliance requires sacrificing business model flexibility.
- Fuse Energy faces ongoing regulatory challenges in the energy sector.
Introduction
In a significant development, the SEC (Securities and Exchange Commission) has given the green light to another project in the crypto space, specifically Fuse Crypto Limited (Fuse). The SEC issued a No-Action Letter (NAL) regarding Fuse's native ENERGY token, officially acknowledging that, under a specific issuance and sales structure, the ENERGY token will not be considered a security. This move not only grants Fuse a competitive edge in terms of compliance but also suggests that Decentralized Physical Infrastructure Network (DePIN) projects may find a smoother path to regulatory compliance compared to other crypto sectors.
SEC Approval and the ENERGY Token Issuance
On November 24, the SEC issued a crucial NAL for Fuse's ENERGY token. This decision marks a systematic shift in the SEC's stance, particularly for blockchain projects aimed at addressing real-world problems. Fuse Energy is a DePIN project focused on energy technology innovation, with its core operations running on an energy network on the Solana blockchain. This system incentivizes household users to install and use Distributed Energy Resources (DERs) such as rooftop solar panels, EV charging stations, and home energy storage batteries.
Fuse aims to coordinate these distributed resources, helping to restructure the grid and manage load pressure, thereby alleviating grid congestion. The NAL specifies that as long as Fuse strictly adheres to the issuance and sales methods outlined in its November 19 submission, the SEC will not take enforcement action under Section 5 of the Securities Act of 1933 and Section 12(g) of the Exchange Act of 1934.
DePIN Compliance Implications
The ENERGY token's compliance exemption is not an isolated case. Multicoin Capital, a firm heavily invested in the DePIN sector, has invested $12 million and $28 million respectively in Fuse and DoubleZero. Interestingly, Fuse's NAL is the second such document issued by the SEC in a short period, following DoubleZero's 2Z token receiving a similar NAL in September. Multicoin Capital may have recognized the immense potential of these two projects in regulatory compliance, or perhaps Multicoin Capital played a role in their receiving NALs. These successive positive signals suggest that the SEC's regulatory approach is shifting from compliance enforcement to conditional compliance guidance.
Backed by new leadership, the SEC is attempting to create a “token taxonomy” to distinguish utility tokens from investment contracts. The NAL provides regulatory protection for projects with utility values. This regulatory clarity may significantly reduce compliance risks in the DePIN sector.
Compliance Trade-offs
A NAL is an administrative decision. The SEC will conduct an in-depth review of Fuse Energy's business model based on the core standard of US securities law, namely the Howey Test, and will issue a judgment based on specific facts and circumstances. Therefore, the NAL has strict restrictions. The SEC stated in its announcement: "Any different facts or circumstances might result in the Division reaching a different conclusion." This wording will form a long-term regulatory constraint on Fuse Energy, effectively "locking" Fuse's business model, token issuance method, and marketing strategies legally into its submission to the SEC.
Any attempt by Fuse to define the ENERGY token as an investment contract or to imply that its value will rise due to project management efforts will pose legal risks and may lead the SEC to revoke the NAL. In short, this compliance will sacrifice flexibility in the business model.
The key for Fuse Energy to avoid the Howey Test lies in the project’s tokenomics failing to meet the fourth element of an investment contract, namely the reasonable expectation of profits from the “efforts of others.” Fuse Energy's core argument is that the purpose of users acquiring ENERGY tokens is for consumption and rewards, not investment. Rather than directly investing funds to earn ENERGY tokens, users participate in network activities and contribute physical resources, including reducing energy consumption during peak hours, using EV charging stations, and storing solar energy. This mechanism makes the ENERGY token incentives more like a "loyalty reward" for environmentally friendly behavior.
In Fuse Energy's architecture, the increase in the token value primarily depends on the efforts and contributions of a large number of participants (namely the deployment and operation of users' equipment), rather than relying solely on the centralized management and efforts of the Fuse team. This "distributed effort" legal argument may provide a solid regulatory foundation for DePIN plans. To further remove the association between the token and the project’s financial success, Fuse has also taken measures to remove investment in the token’s value design. The redemption value of the ENERGY token is linked to Fuse’s profit margin and the average market price of the token when it is used. This design aims to ensure that ENERGY is regarded as an immediate utility token, encouraging users to consume quickly (e.g., obtain discounts on electricity bills or carbon offsets). When the value of the ENERGY token does not depend on Fuse’s financial success, users will be discouraged from hoarding tokens in anticipation of the project achieving future value gains. These factors together contributed to the SEC’s determination that the ENERGY token does not meet the definition of an investment contract.
Regulatory Challenges in Business
While the NAL temporarily resolves the regulatory risk of the ENERGY token being considered a security, Fuse Energy is not necessarily in the clear now. Fuse has sacrificed the token’s liquidity for compliance. Users cannot freely transfer tokens, and the channels for withdrawing funds are limited and unique, which significantly reduces the asset’s attractiveness. If Fuse Energy is no longer satisfied with the status quo, changes the products, or modifies the token mechanisms (such as opening secondary market trading or changing pricing strategies), or if the actual operations are inconsistent with the stated facts, the NAL does not have legally binding force, and the SEC can revoke it and initiate enforcement proceedings at any time, posing a regulatory backlash risk. Therefore, although the ENERGY token has been “de-securitized,” Fuse still has a responsibility to increase its operational transparency, disclose project risks, and enhance education among 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, usually subject to strict regulation by state and local public utility commissions. Regulatory Compliance and Licensing: Fuse is very likely to spend significant resources to handle the complex administrative procedures to obtain the licenses and approvals required to operate in different states or regions. Potential Restrictions from Utility Companies: Traditional utility companies typically have an established customer base, infrastructure, and political influence. These companies may use their brand advantage to hinder the growth of retail suppliers and competitors such as Fuse, and by implementing new energy regulatory policies, to further restrict the development space of non-utility developers.
The SEC's approval of Fuse is a rational return by regulators in the “utility tokens” sector. For the industry, this is both a tonic and an antidote: the price of compliance is usually the sacrifice of investment attributes and liquidity. While we welcome the breaking of the regulatory ice, the market needs to clearly realize that this is just permission for a specific business model, not a celebration of the overall “de-securitization” of tokens.
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