In a recent correspondence dated September 2024, House Majority Whip Tom Emmer and House Financial Services Committee Chairman Patrick McHenry expressed reservations regarding the Securities and Exchange Commission’s (SEC) categorization of airdrops as securities. The lawmakers’ letter to SEC Chair Gary Gensler highlighted the significance of airdrops within the blockchain sphere, emphasizing them as distributions of digital assets to early adopters of blockchain protocols.
Emmer and McHenry noted that airdrops serve as incentives for engagement in blockchain applications, thereby fostering network decentralization and governance. Criticizing the SEC for what they viewed as obstructing blockchain’s growth through stringent regulations, the lawmakers argued that the agency’s actions impede decentralized goals and technological advancement, limiting the involvement of U.S. citizens in the internet’s next evolution.
The letter also included inquiries directed at Gensler regarding the SEC’s stance on airdrops, particularly concerning the application of securities law and the Howey Test to these transactions. Emmer and McHenry sought clarification on whether the distribution of non-security digital assets for free would trigger regulatory scrutiny under the Howey Test, comparing airdrops to conventional consumer rewards like airline miles or credit card points that are not subject to such assessments.
Moreover, the lawmakers raised concerns about the potential repercussions of classifying digital tokens as securities on the broader blockchain ecosystem. They cautioned that excessive SEC regulation could impede the functionalities of on-chain applications driven by consumptive demand for tokens. Emmer and McHenry pressed Gensler for insights into the economic implications, including the impact on economic growth, tax revenues, and the exclusion of American users from airdrops due to regulatory constraints.
An imminent response from Gensler was requested by September 30, 2024, coinciding with preparations for a congressional hearing on crypto regulation bias scheduled for September 18, 2024.