Emmer Seeks SEC Clarity on Whether Crypto Airdrops Are Securities

On September 17, Congressman Tom Emmer of Minnesota sent a letter to SEC Chair Gary Gensler along with House Financial Services Committee Chairman Patrick McHenry, seeking clarification on whether crypto airdrops are classified as securities transactions.

“During Chairman Gensler’s tenure, the SEC has favored its position, hindering Americans from participating in the evolution of the internet,” he remarked.

The Congressman emphasized that airdrops are crucial for promoting involvement in blockchain-based applications, aiding in the development, initial governance, and eventual decentralization of these networks.

The future of the peer-to-peer digital economy cannot be left to the authoritarian whims of @GaryGensler.

Today, @PatrickMcHenry and I are seeking clarity from the SEC regarding their stance that airdrops are securities transactions. pic.twitter.com/UFm7ymdEaj

— Tom Emmer (@GOPMajorityWhip) September 17, 2024

Clarity on Airdrops

The House Majority Whip elucidated that the unclear regulatory status of airdrops in the U.S. often leads developers to prevent Americans from claiming these tokens, even when they have contributed to the network’s development.

An airdrop refers to the distribution of free tokens by a crypto project to engage users on their platform, akin to loyalty rewards like air miles or credit card benefits.

Nonetheless, the SEC has suggested in recent enforcement actions that airdrops could be considered securities.

Emmer and McHenry expressed concern that inappropriate application of securities laws will hinder the potential and decentralization of this technology.

The letter contains five queries, including how the SEC differentiates between rewards like air miles and crypto airdrops, and how it interprets the Howey Test in relation to free crypto tokens given to users.

The legislators concluded:

“The SEC’s strategy during your leadership has only secured that the next phase of the internet will not reflect American innovation or values, ultimately disadvantaging our constituents.”

The correspondence requested a reply from the SEC by September 30.

Concerns about Pump and Dumps

A significant worry surrounding airdrops is their propensity for pump-and-dump schemes, as new airdropped assets are often sold off rapidly.

This phenomenon has been observed in high-profile cases in recent years, with assets like Uniswap (UNI) down 85% from their peak, Apecoin (APE) dropping 97%, and dYdX down 80%.

Another two substantial drops occurred after the Ethereum Name Service (ENS) airdrop, when its value surged to $80 before plummeting below $20 months later, echoing the case of Internet Computer (ICP), which shot up to $700 post-airdrop but has since collapsed by 99%.