Two pro-crypto lawmakers in the US are demanding SEC Chairman Gary Gensler clarify the regulatory position of airdrops.
SEC’s Approach to Airdrops Comes Under Criticism
North Carolina Rep. Patrick McHenry and Minnesota Rep. Tom Emmer wrote to Gensler this week arguing that the SEC’s regulatory approach to crypto is hindering decentralization.
“By bringing charges in multiple lawsuits over airdrops and raising alerts for additional enforcement actions, the SEC is creating a hostile regulatory environment that is preventing American citizens from shaping the next phase of the internet.”
The lawmakers cited the SEC’s lawsuit filed against crypto billionaire Justin Sun and related companies in 2023. The SEC accused Sun and his companies of offering and selling TRX and BTT tokens as unregistered securities.
SEC Treats Airdrops as Securities
The SEC specifically alleged that Sun and his companies sold BTT to investors via “unregistered monthly airdrops,” which violated securities laws. That case is still ongoing. There are also many other similar cases ongoing.
Emmer and McHenry want Gensler to explain how airdrops relate to the Howey Test, which was created by the Supreme Court 90 years ago to determine whether assets are classified as securities.
Uncertainty Over Airdrops and the Howey Test
The lawmakers asked in the letter: “Does the SEC consider that freely distributed non-securities digital assets are subject to the Howey Test? If so, under what conditions or regulations?”
“Companies often offer rewards to customers in the form of intangible representations of value, such as airline miles or credit card points, and this is not relevant to the Howey Test. These rewards are distributed for free to incentivize participation, just as airdrops are intended to engage users and developers in the growth and decentralization of the blockchain. How does the SEC distinguish between these rewards, which are given for free, and digital assets that are airdropped to an individual?”
Republican lawmakers are demanding a response by September 30.
These demands reflect concerns that crypto regulations need to be clear and innovation needs to be avoided. Lawmakers believe the current approach is preventing American citizens from having a say in new technologies. The SEC’s response could be critical to clearing up uncertainty in the sector. These questions could be brought up again by SEC officials who will address Congress on Tuesday. On the other hand, the potential for Trump’s DeFi project to be sued soon may have prompted US politicians to open up such a space for discussion.
Disclaimer: The information contained in this article does not contain investment advice. Investors should be aware that cryptocurrencies carry high volatility and therefore risk, and should carry out their transactions in line with their own research.
