On Sept. 17, Minnesota Representative Tom Emmer wrote with House Financial Services Committee Chairman Patrick McHenry to SEC Chair Gary Gensler requesting clarity on whether crypto airdrops are securities transactions.
“Under Chairman Gensler’s tenure, the SEC has put its thumb on the scale and prevented Americans from shaping the next iteration of the internet,” he said.
The Congressman added that airdrops play an important role in incentivizing participation in blockchain-based applications. This contributes to the continued development, initial governance, and ultimate decentralization of these networks, he added.
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
Airdrop Clarity
The House Majority Whip explained that due to the “muddied regulatory status of airdrops in the United States,” developers often block Americans from claiming such tokens, even when those individuals may have been building on the network or otherwise contributing to its development.
An airdrop is when a crypto project sends free tokens directly to network participants to attract users to the platform. These are similar to loyalty rewards such as air miles or credit card rewards.
However, the SEC has raised the possibility in recent enforcement actions against crypto firms that airdrops may qualify as securities.
Emmer and McHenry said that they are “concerned that a misapplication of the securities laws will prevent this technology from achieving decentralization and its full potential.”
The letter demands answers to five questions, such as how the SEC distinguishes between rewards such as air miles and crypto airdrops and how the agency believes the Howey Test applies to free crypto tokens being given to users.
The lawmakers concluded:
“The SEC’s approach during your time as Chair has only ensured that the next iteration of the internet is not designed by Americans or with American values, which is not to the benefit of our constituents.”
The letter requested a response from the securities regulator by September 30.
Pump and Dumps
One major concern with airdrops is their pump-and-dump nature, as the newly airdropped assets usually get sold off pretty quickly.
This has been seen with some of the highest-profile cases in recent years, such as Uniswap (UNI), which is down 85% from its peak, Apecoin (APE), dumping 97%, and dYdX down 80%.
Two other massive dumps came after Ethereum Name Service (ENS) was airdropped, hitting $80 before dipping below $20 a few months later, and the same with Internet Computer (ICP), which surged to $700 after the airdrop but has since collapsed by 99%.
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