KEY POINTS
- The lawmakers pointed out that intangible rewards from other companies don't invoke the Howey Test
- They said the SEC's approach to regulation is making decentralization impossible
- They also slammed Gensler's leadership and the SEC's 'unwillingness' to establish a regulatory framework
Crypto token airdrops are some of the most exciting events in the digital assets space as community members await token cuts for their early participation in a blockchain network. However, there is growing concern about regulatory hurdles potentially affecting the future of token airdrops.
Such concerns were emphasized in a Tuesday letter from Republican congressmen Tom Emmer of Minnesota and Patrick McHenry of North Carolina addressed to U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler.
The 'Crucial Role' of Airdrops in Blockchain Development
The lawmakers first noted how token airdrops were designed to incentivize community participation in the development and growth of blockchain-based applications. They said the events play a "crucial role" in the overall development of a decentralized ecosystem.
Emmer and McHenry, who chairs the House Committee on Financial Services, now want Gensler to provide clarity on "the status of distributions of digital assets via 'airdrops.'"
"We are concerned that a misapplication of the securities laws will prevent this technology from achieving decentralization and its full potential," they wrote.
Making Decentralization Impossible
The GOP House members argued that the core of blockchain and cryptocurrency is decentralization, but the SEC's regulatory approach to the technology "seems to make the goal of decentralization impossible to obtain."
"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 preluding American citizens from shaping the next iteration of the internet," they said.
They reiterated that some companies routinely provide customers with rewards through "intangible representations of value." For instance, airlines offer rewards in miles, while banking institutions offer credit card points – both intangible rewards are given "without implicating the Howey Test," a four-part test that determines whether a certain asset is subject to U.S. securities laws.
For Emmer and McHenry, crypto airdrops are the same since they also aim to encourage engagement. "How does the SEC distinguish between these rewards, given away for free, and digital assets airdropped to an individual?" they asked.
A Direct Rebuke toward an 'Unwilling' Regulator
Emmer and McHenry went on to call out the Wall Street regulator for its "unwillingness to establish a regulatory framework" in the country. They said such unwillingness has forced blockchain developers to prevent American crypto users from claiming ownership of a digital asset in an airdrop.
A Stern Lecture for a Controversial Leader
Since taking the throne of the SEC in 2021, Gensler started a massive crackdown on crypto firms and blockchain protocols. He is widely called "anti-crypto" in the broader crypto community for his enforcement-first approach toward regulation.
Emmer and McHenry have picked up on the noise. "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," they said.
They are giving Gensler only until Sept. 30 to respond to their queries, including on whether the financial regulator has ever considered the economic consequences of the SEC's "treatment of air-dropped digital assets as securities."
