This week’s newsletter features expert analyses from Thad Pinakiewicz on the SEC’s recent no-action letter to DoubleZero, amidst shifting regulatory dynamics in Washington; Lucas Tcheyan exploring the launch of NFTs on Hyperliquid; and Christopher Rosa examining SWIFT’s latest integration with blockchain technology.
SEC Indicates Functional Tokens Are Not Necessarily Investment Contracts
In a significant development, the SEC’s Corporate Finance division granted a no-action letter (“NAL”) to DoubleZero concerning their proposed 2Z token distribution, stating, “Based on the facts presented, the Division will not recommend enforcement action.” This marks a potentially crucial shift as a crypto venture sought clarity on a token launch and received a positive response. Previously, under Chairman Gary Gensler, the SEC primarily focused on retroactive enforcement, often inviting projects to “register,” only to issue Wells notices soon after. This outcome is partly attributed to evolving perspectives within the SEC, alongside DoubleZero’s legal team’s efforts to clearly define their token’s utility.
An SEC no-action letter suggests that the agency’s staff currently does not intend to pursue enforcement against a party regarding a planned activity. This offers the requester regulatory certainty, though the letter isn’t a formal, legally binding commitment from the Commission. While not establishing legal precedent, these letters frequently influence interpretations of securities law’s ambiguous zones and provide guidance for industry practices. They function as indicators of regulatory tolerance and anticipated conduct.
Before this NAL, the last comparable instance of forward-looking guidance from the SEC regarding token issuance was a 2019 NAL for TurnKey Jet. This letter specified that the SEC staff would not take action if the token was not traded on secondary markets, maintained a stable $1 value, and was solely usable for purchasing services from the issuer – acting akin to airline miles or reward points (a very limited functionality). The DoubleZero NAL signals a more accommodating view of tokens with greater utility and tradability, marking a significant shift in the SEC’s stance toward the crypto sector.
DoubleZero’s concept centers on the 2Z token as a functional incentive, not a speculative investment, to coordinate decentralized physical infrastructure (DePin). Their objective is establishing a worldwide network of unused fiber-optic bandwidth, forming a dedicated internet for decentralized systems like blockchains. The network aims to motivate fiber-optic infrastructure owners (Network Providers) to leverage their idle capacity and encourage operators (Network Participants) to manage traffic routing between Network Providers to ensure the network’s resilience. Network Users pay for access to this private network, and these payments are algorithmically distributed to productive Network Providers and Participants through the 2Z token.
In their letter to the SEC, the DoubleZero team focused on the fourth element of the Howey Test: the reasonable expectation of profit derived from the managerial efforts of others. DoubleZero convincingly argued that the 2Z token functions solely to align bandwidth suppliers and users. The profits (and losses) are directly tied to Network Providers and Participants’ contributions and operational activities within the DoubleZero network, not from the actions of others. DoubleZero positioned Network Providers and Participants as operating within an incentive-based framework, an area where the SEC has already signaled acceptance (twice). To be classified as an investment contract (and thus a security), an asset must satisfy all components of the Howey test. As the 2Z token does not meet the fourth requirement (profit expectation from others’ efforts), it falls outside the SEC’s regulatory scope.
Commissioner Hester Peirce publicly hailed the letter, reiterating her longstanding view that securities analysis should be driven by economic substance, not mere form. Peirce has often been a counterweight to what she viewed as overreach by the SEC under her predecessor, Gary Gensler, dissenting on numerous SEC crypto-related actions. In her “New Paradigm” speech after taking the helm of the SEC’s newly formed Crypto Task Force, she asserted that many digital assets are not securities and advocated for tailored safe harbors for tokens. This week’s NAL represents one of the initial tangible steps taken by SEC staff in this direction. Under Peirce’s leadership, the Crypto Task Force has organized five industry discussions and held more than 150 meetings with cryptocurrency firms and other relevant parties.
OUR PERSPECTIVE:
This action from the SEC is a promising signal for the crypto industry. For years, projects were often implicitly treated as potentially criminal, facing limited options: being targeted by enforcement, navigating a confusing and slow registration pathway with minimal success, or restricting services to US users (many of whom often circumvent these measures).
Previously, Blockstack (later Stacks) with its STX token, had a degree of success with the SEC. Stacks launched its token as a registered security, leveraging a crowdfunding exemption (Reg A) allowing for reduced disclosure requirements. Two years later, Stacks stopped SEC filings, asserting that the network had become sufficiently decentralized. The SEC chose not to challenge Stacks following a three-year investigation. While this implied tacit acceptance, it contrasts with the explicit acknowledgment given to DoubleZero.
This victory for DoubleZero has far-reaching implications for token design globally. It establishes a template for structuring utility tokens that may avoid classification as investment contracts by the SEC. Critically, the NAL provides guidance specific to token designs substantially mirroring that of DoubleZero. While SEC staff has indicated they won’t pursue enforcement against DoubleZero based on its token offering being considered an investment contract, the NAL isn’t a comprehensive statement on all token designs. The approval is conditional and context-dependent, representing a staff-level decision rather than a broad policy overhaul. It does not legitimize prior token distributions or flows outside the specified design, nor does it prevent future enforcement if conditions change or the SEC alters its perspective (particularly under different leadership). Any token attempting to replicate 2Z’s structure must demonstrate meticulous documentation and adherence to the “utility-first” model outlined in the NAL.
While this is a positive development for crypto, it may be some time before the regulators issue further pronouncements, good or bad. Due to budgetary disputes, the federal government has been shut down, a recurring event across administrations. Regulatory activity will likely be minimal until a resolution is reached (prediction markets suggest the shutdown will exceed two weeks).
The shutdown could delay expected SEC actions, such as an “innovation exemption” allowing stocks to be traded within DeFi applications, which the SEC is reportedly preparing “very soon” according to The Information.
The Commodity Futures Trading Commission is similarly affected, with Brian Quintenz’s nomination for chairman withdrawn and acting chairman Caroline Pham serving as the sole commissioner on the usually five-member board. Therefore, celebrate the DoubleZero news while you can, as the next positive development could take some time. – Thad Pinakiewicz
Hyperliquid Distributes NFTs to Early Adopters
Hyperliquid airdropped 4,600 “Hypurr” NFTs to early users of their protocol on Monday. Recipients had to opt-in during the airdrop registration in November, with the top 5,000 users by accumulated points being eligible. Of these, 144 were allocated to the Hyper Foundation and 143 to core contributors like Hyperliquid Labs and the NFT artists. The foundation described the airdrop as “a token of appreciation for those who believed in and contributed to Hyperliquid’s early development.”
Trading activity surged immediately, with the floor price reaching nearly $70,000 soon after the initial release, including a rare Hypurr sale for 9,999 HYPE (approximately $470,000 at the time) ranking among the top 500 NFT sales of all time. Within a week, the collection generated nearly $90 million in transaction volume, exceeding the next collection (CryptoPunks) by over double, placing it among the top 100 collections by total trading volume.
According to the terms and conditions, Hypurr NFT holders receive an exclusive, royalty-free, transferable, and sublicensable license to utilize and commercialize the specific artwork associated with their NFT across any medium, as long as they retain ownership. There is no promise of further utility, and the terms state only that “Hypurr NFTs may from time to time be associated with certain benefits, features, or entitlements (‘Utility’).”
OUR PERSPECTIVE:
NFTs are in many ways a remnant of the 2020-2021 boom. Volumes have decreased by more than 90% since their height, floor prices for almost all collections besides the most iconic have moved towards zero, and many have shifted to fungible tokens (as seen with Pudgy Penguins, Azuki, Doodles, and Moonbirds). But, “What is dead may never die.” NFTs haven’t disappeared, just evolved. Community-building and speculation, their original uses, have been absorbed by memecoins.
Hypurr’s distribution model sets it apart. Most NFTs have been used to start communities that rely on hype (lowercase, as distinct from Hyperliquid’s token) for relevance. Hypurr reversed that approach. It was distributed to Hyperliquid’s early supporters, one of the strongest user bases in crypto. These users are already invested in the project’s vision, well-funded by a major airdrop, and connected to a rapidly growing, profitable platform. The NFTs don’t need to sustain the community – the underlying exchange does. Speculation suggests owning a Hypurr might grant access to future ecosystem airdrops, like the next HYPE distribution, or even trading fee discounts.
Building an NFT community on top of an existing business may be a viable strategy for NFTs outside of historically important collections like CryptoPunks. Pudgy Penguins offers the closest parallel. After Luca Netz’s 2022 acquisition, the team developed the collection into a consumer brand with toys, licensing, and its own chain, Abstract. However, Pudgy had to build a business *after* the NFT collection, a harder path.
MegaETH recently utilized NFTs to fundraise, raising over $13 million anticipating a future token drop. Without an established, revenue-generating product, volumes declined quickly. Hypurr sits in between: not for bootstrapping or fundraising, but an airdrop embedded in an existing ecosystem. This base improves its potential for continued relevance, and could position it as a Veblen good; a scarce asset valued for its status within the Hyperliquid community and future possibilities.
The timing is also significant. Hypurr arrived as Hyperliquid’s volumes began shifting to Aster (previously mentioned here). The airdrop can be seen as a strategic effort to regain prominence, shifting attention back to Hyperliquid when doubts surfaced. Whether intended or accidental, it worked: Hypurr dominated crypto Twitter, generated millions in secondary volume, and reinforced Hyperliquid’s ability to command attention.
The long-term success of Hypurr isn’t assured; assessing longevity after only a week is difficult. Yet, attention is valuable in crypto, and Hypurr acquired more of it for Hyperliquid. – Lucas Tcheyan
SWIFT Explores Blockchain: Real Progress or Overstated Claims?
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) announced on Monday it will collaborate with ConsenSys and Linea to incorporate a blockchain-based shared ledger into its infrastructure. ConsenSys, an Ethereum development firm, will create the initial prototype and outline the future roadmap. SWIFT is a messaging system facilitating international interbank payments and transfers, handling over 11.5 billion messages in 2023, linked to payments, securities, and FX transactions estimated in the hundreds of trillions of dollars.
SWIFT has previously experimented with blockchain integrations, most recently in November 2024 with UBS Asset Management and Chainlink. This pilot connected tokenized fund transactions with existing payment systems. It utilized ISO 20022, a global financial standard with structured payment data, showing SWIFT messages can trigger on-chain actions like subscriptions and redemptions through smart contracts. Linea, ConsenSys’s Ethereum layer-2 network, integrates with Chainlink’s Cross-Chain Interoperability Protocol (CCIP), for transferring data and tokens across blockchains, providing banks a direct pathway from SWIFT messages to on-chain execution.
SWIFT states the shared ledger will “enable real-time, always-on cross border payments and settlement.” Transactions will be recorded, sequenced, validated, and governed by smart contracts that automatically enforce rules. The design aims to work with existing and emerging networks while maintaining the trust, resilience, and compliance SWIFT offers.
OUR PERSPECTIVE:
SWIFT ensures secure messaging and standard protocols for cross-border payments; it doesn’t maintain a central ledger, hold client funds, or operate payment rails. In a transaction between Bank A and Bank B, SWIFT transmits the instructions, yet each bank updates their own records using nostro (“our money with you”) and vostro (“your money with us”) accounts. This creates distinct records across institutions, needing reconciliation, causing delays, and necessitating manual adjustments across time zones. The model also carries FX risk because transfers begin outside banking hours and rates shift before settlement, impacting delivered amounts. Therefore, the workflow and liquidity rails are outdated, slow, and limited by time zones.
The pilot program suggests enhancing SWIFT’s messaging layer to instead utilize a coordinated, shared-state blockchain ledger. SWIFT proposes a neutral coordination layer by leveraging a ledger that records, sequences, validates, and automates rules across many participants, allowing banks to maintain regulated digital cash rails. This would reduce breaks, decrease operational risks, require smaller liquidity buffers, and provide instant availability across time zones. In the future, tokenized bank balances could be represented one-to-one on the ledger, transfers would settle on-chain continuously, compliance could be embedded in smart contracts, and connection to central bank platforms or stablecoin issuers could become possible, creating an auditable trail.
Currently, there is no guaranteed liquidity or settlement layer. A shared blockchain ledger enables banks to coordinate records, sequence transactions, and validate instructions with smart contracts. Instant settlement requires participants holding pre-positioned liquidity on the ledger. The pilot moves in this direction, but true 24/7/365 settlement remains a goal. Banks must settle in tokenized assets, stablecoins, or a central bank digital currency (CBDC), and the preferred method is undecided.
Complications include jurisdiction and regulation, governance, data privacy, migration costs, and competition. Finality is determined by the settlement asset; excluding central bank money, tokenized deposits or bank stablecoins must adhere to local rules on legal finality, liquidity, and redemption. SWIFT hasn’t specified a single instrument, likely remaining asset-neutral and striving to interoperate across deposits, stablecoins, and CBDCs. Ripple positions XRP for on-demand liquidity, but SWIFT’s adoption of XRP (directly or through interoperability) hinges on bank demand, regulatory comfort, and cost. Share.