Highlights:
- Top Republican lawmakers expressed concerns about the SEC’s handling of airdrops.
- They argue that the SEC’s approach could stifle blockchain technology and hinder decentralization.
- The lawmakers seek answers on how airdrops are treated under securities law and their broader impact.
Two U.S. lawmakers, House Financial Services Committee Chair Patrick McHenry of North Carolina and House Majority Whip Tom Emmer of Minnesota, have raised concerns over the Securities and Exchange Commission’s (SEC) approach to classifying airdrops as securities. In a Sept. 17 letter to SEC Chair Gary Gensler, they questioned the agency’s stance on the matter. The lawmakers cited the SEC’s “assertions about airdrops” in recent lawsuits over the past two years.
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The future of the peer-to-peer digital economy cannot be left to the authoritarian whims of @GaryGensler.
Today, @PatrickMcHenry and I are requesting answers from the SEC on their position that airdrops are securities transactions. pic.twitter.com/UFm7ymdEaj
— Tom Emmer (@GOPMajorityWhip) September 17, 2024
Lawmakers Criticize SEC’s Handling of Airdrops and Blockchain Growth
McHenry and Emmers pointed to instances where the SEC has tackled airdrops. In September 2022, the SEC sued Hydrogen Technology Corporation and its former CEO for manipulating markets with what it labelled “crypto asset securities.” The firm minted over 11 billion Hydro tokens for fundraising and distributed them as airdrops, which the SEC deemed “unregistered offers and sales of their securities.” Moreover, in March 2023, the SEC sued Tron founder Justin Sun and other firms, alleging they offered and sold BitTorrent (BTT) through “unregistered monthly airdrops to investors.”
Further, they wrote:
“We are concerned that a misapplication of the securities laws will prevent this technology from achieving decentralization to its full potential.”
The letter highlights airdrops’ importance, defining them as “distributions of digital assets to early users of a blockchain protocol.” The lawmakers also noted that crypto airdrops “play a crucial role in the development of a decentralized blockchain ecosystem.” They criticized the SEC under Gary Gensler for creating a “hostile regulatory environment” that hampers blockchain growth. McHenry and Emmer argued that airdrops boost engagement with blockchain apps, promoting decentralization and governance.
The lawmakers said the SEC’s actions make achieving decentralization “impossible” and hinder the technology’s potential. They accused the SEC of “putting its thumb on the scale” through enforcement actions and warnings, limiting U.S. citizens’ participation in the next generation of the internet.
They wrote:
“By creating a hostile regulatory environment, including making assertions about airdrops in various cases and increasing warnings for additional enforcement actions, the SEC is putting its thumb on the scale and precluding American citizens from shaping the next iteration of the internet.”
Emmer and McHenry also questioned Gary Gensler, seeking clarity on the SEC’s interpretation of securities law concerning airdrops. They specifically asked whether giving away digital assets for free could trigger the Howey Test, which determines if a transaction qualifies as an investment contract under U.S. law. This question is relevant as the assets themselves are not classified as securities.
They are scared to death of decentralization because it restores what this country was built on, which is by the people from the ground up. pic.twitter.com/0SgLMN4IBu
— Tom Emmer (@GOPMajorityWhip) September 17, 2024
Emmer and McHenry Demand Answers on Crypto Airdrops by Sept. 30
Emmer and McHenry demanded that Gensler answer five questions about crypto airdrops by Sept. 30. They inquired about how crypto “given away for free” fits under the Howey Test and how the SEC differentiates airdrops from other rewards like credit card points.
They also asked about the potential impact on on-chain applications, economic growth, and tax revenue if airdropped tokens were classified as securities. Additionally, they sought information on whether the SEC has assessed the market impact of classifying cryptocurrencies as securities.
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