US Congressmen Tom Emmer and Patrick McHenry have had enough of the SEC’s approach to blockchain regulation, particularly its opinion on airdrops.
In a pointed letter addressed to SEC Chair Gary Gensler, they question the logic behind the agency’s decision to label digital asset airdrops as securities.
Airdrops, typically free distributions of tokens to early users, are a key element in decentralized ecosystems.
Emmer and McHenry are pushing for answers, saying that the SEC’s approach is utterly misguided and could also stifle innovation in the U.S. blockchain industry. The lawmakers wrote that:
“Airdrops play a crucial role in the development of decentralized networks. By labeling these as securities, the SEC is creating unnecessary barriers that hinder the growth of these technologies.”
A big part of Emmer and McHenry’s argument is Gary’s application of the Howey Test, a legal framework that determines whether an asset qualifies as a security.
The SEC believes that some airdrops might fall under this classification due to their potential to meet the “investment of money” criterion under Howey.
And this is where the congressmen take issue.
“The SEC’s position is inconsistent,” they said, adding that:
“The agency has previously stated that digital assets themselves are not securities. Yet, now it claims that giving away these assets for free might somehow trigger securities regulations. How does that make sense?”
The lawmakers are pushing Gary to explain the circumstances under which free digital assets would qualify as securities under the Howey Test.
They want clarity on how the SEC distinguishes between airdrops and other types of rewards programs, such as airline miles or credit card points, which are also given to customers without payment but are not classified as securities.
Airdrops are often used to engage developers and users in the growth of decentralized networks. By encouraging participation, they help establish a network’s governance and contribute to its decentralization.
“The SEC is making it nearly impossible for blockchain projects to achieve true decentralization,” the congressmen write.
They believe that:
“Without a clear path forward, developers are being forced to exclude American users from airdrops altogether. This harms U.S. innovation and prevents American citizens from being part of the next wave of internet technology.”
As the letter explains, developers have already started blocking U.S.-based participants from airdrops due to fears of SEC enforcement.
This exclusion could leave American users out of key blockchain advancements and force blockchain projects to move their operations overseas.
In a decentralized blockchain network, tokens are often valued based on their utility or consumptive use within the ecosystem, making them more akin to commodities than securities.
The congressmen argue that spot commodity transactions are generally treated as commercial transactions, without the heavy regulatory oversight that comes with securities.
They’re asking the SEC to clarify how it plans to handle these tokens once a network is fully decentralized.
Beyond the dangers to blockchain projects, Emmer and McHenry are also concerned about the broader economic implications of the SEC’s actions.
They’re asking the SEC to provide any analysis it has conducted on how classifying airdrops as securities could affect the market, economic growth, and tax revenue.
Emmer and McHenry are demanding that Gary and the SEC provide a detailed response, including any economic analysis they’ve conducted, by September 30th.
This is just another in a series of Gary’s recent misfortunes. The man has former staff testifying against him, Donald Trump promising to fire him the second he takes the Oval back, and Democrats advising Kamala Harris to do the same. He lost the infamous Ripple case too.
Suffice it to say Gary is NOT having a good year.
