Crypto Airdrops off Limits for US Citizens: House Republicans Press for Answers 

Key Takeaways

• Republican lawmakers sought clarity from the SEC on its stance on crypto airdrops.
• Rep. Tom Emmer and Rep. Patrick McHenry wrote a joint letter demanding answers to five key questions.
• SEC has threatened enforcement action against crypto projects offering airdrops.

House Republicans are demanding answers from the Securities and Exchange Commission (SEC) on its stance on crypto airdrops, a widely used but largely unregulated reward system that has left many U.S. investors on the sidelines for years.

For months, the issue has created uncertainty and frustration for U.S. investors, many of whom have been barred from participating in crypto airdrops due to the SEC’s perceived skepticism towards the practice.

Republican Lawmakers Make a Case for Airdrops

In a bid to address the regulatory ambiguity surrounding crypto airdrops, Representatives Tom Emmer and Patrick McHenry have sent a joint letter  to SEC Chairman Gary Gensler, urging the commission to provide clarity on its stance.

The lawmakers’ concerns are two-fold. Firstly, they argue that the SEC’s broad interpretation of the term “security” has led to an overreach of the commission’s authority, with the regulator deeming several crypto airdrops as securities.

Secondly, they are concerned that the lack of clear guidance has forced many blockchain projects to exclude U.S. citizens from participating in airdrops, citing the risk of SEC enforcement action.

The letter noted that airdrops play a crucial role in the early stages of blockchain projects, including attracting new users, initial governance, and ultimate decentralization.

It claimed that the SEC’s continuous threats of potential enforcement action have forced many budding crypto projects to stop offering such airdrops to U.S. customers.

The lawmakers argued that the SEC’s enforcement action makes it quite complex for crypto companies to operate and hinders the goal of decentralization.

“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.”

The Quest for Answers

By drawing parallels with traditional loyalty rewards programs, such as those offered by airlines and credit card companies, the lawmakers are highlighting the need for clarity on how the SEC distinguishes between these programs and crypto airdrops.

The joint letter poses five key questions to the SEC, seeking answers to the following:

1. How does the SEC distinguish between rewards like airline miles and airdropped crypto tokens?
2. How does the Howey test apply to free crypto tokens that projects offer to users?
3. How would the SEC classify tokens that are decentralized and driven by demand?
4. What’s the analysis of the SEC’s enforcement action against crypto securities?
5. How have SEC’s security allegations impacted crypto projects and potential losses due to such actions on crypto airdrops?

The joint letter demanded that the SEC respond to all five questions by Sept. 30.

Although the SEC has yet to take enforcement action against crypto airdrops, the commission has certainly shown intent to do so.

The securities regulator recently sent a Wells notice to Uniswap over the UNI token airdrop. 

A Wells notice is a warning by the SEC that they are planning a securities enforcement in the near future. 

About the Author

Prashant Jha

Prashant Jha is a crypto-journalist focused on the US and UK markets, his interests lie in blockchain technology and crypto adoption across emerging economies.

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