As a seasoned crypto investor with a decade-long journey through the digital asset landscape, I find myself deeply concerned about the ongoing regulatory uncertainties surrounding airdrops. Having witnessed firsthand the potential of blockchain technology to transform industries and empower individuals, I share Congressman Tom Emmer’s sentiment that the “muddied regulatory status” of airdrops in the United States is causing undue harm.
On September 17th, Minnesota Representative Tom Emmer, in collaboration with House Financial Services Committee Chairman Patrick McHenry, penned a letter to the Securities and Exchange Commission (SEC) Chair, Gary Gensler, seeking clarification about whether crypto airdrops are considered as securities transactions.
During Chairman Gensler’s leadership, the SEC has been leaning in favor of certain parties, thus denying Americans the opportunity to influence the future development of the internet.
The Representative noted that airdrops significantly boost involvement in apps built on blockchain technology. This encouragement facilitates their ongoing growth, early management, and eventual devolution into fully decentralized systems, as he explained further.
It’s crucial that the development of the decentralized digital economy isn’t solely controlled by the authoritative decisions made by @GaryGensler in the future.
Currently, PatrickMcHenry and I are seeking clarification from the Securities and Exchange Commission about their stance that airdrops qualify as securities transactions.
— Tom Emmer (@GOPMajorityWhip) September 17, 2024
Airdrop Clarity
The lead representative in the House clarified that because “airdrop regulations in the U.S. are unclear,” many developers frequently prevent American citizens from receiving such digital tokens, despite these people potentially having contributed to the network’s construction or growth.
A cryptocurrency airdrop refers to a situation where a digital currency project distributes its tokens for free to users on their network, with the aim of drawing in more users to the platform. This is somewhat comparable to customer incentives like frequent flyer miles or credit card bonuses.
In some recent cases where crypto companies have been under scrutiny by the SEC, it’s been suggested that airdrops could potentially be classified as securities.
Emmer and McHenry expressed worry that incorrectly applying securities regulations could hinder this technology from fully realizing its goal of becoming truly decentralized and reaching its maximum 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:
During your tenure as Chair, the SEC’s strategy may have inadvertently led to the development of future versions of the internet being primarily driven outside of America, or without American values. This shift might not be advantageous for our citizens.
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.
In many high-profile instances over the past few years, including Uniswap (UNI) dropping by 85%, Apecoin (APE) plummeting by 97%, and dYdX decreasing by 80%, there has been a noticeable trend.
Following the airdrop of Ethereum Name Service (ENS), two other substantial distributions occurred, peaking at $80 before subsequently falling below $20 within a few months. The same pattern was observed with Internet Computer (ICP), which skyrocketed to $700 following the airdrop, but has since plummeted by 99%.
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2024-09-18 11:13