Gary Gensler-Led SEC Should Clarify Crypto Airdrop Rules, GOP Representatives Demand

In a formal letter to U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler, prominent Republican leaders, Tom Emmer (R-MN) and Patrick McHenry (R-NC), are pressing for clarity on the regulatory stance surrounding crypto airdrops.

What Happened: The lawmakers argue that the SEC's current approach risks stifling innovation in the burgeoning digital asset space, especially as the industry continues to grow in adoption and scope.

Emmer, the House Majority Whip, and McHenry, the Chairman of the House Committee on Financial Services, highlighted concerns over the SEC’s classification of airdrops—free distributions of digital assets to early users or participants in blockchain protocols—as unregistered securities.

They emphasize that these distributions are critical for incentivizing participation in decentralized networks and contributing to the growth of blockchain technology.

In their letter, dated Sep. 17, Emmer and McHenry argue that the SEC's regulatory ambiguity is detrimental to the development of decentralized technologies, stating: "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 precluding American citizens from shaping the next iteration of the internet."

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The lawmakers raise several key questions for the SEC, requesting clarification on whether the distribution of non-security digital assets implicates the Howey Test, which defines what constitutes an investment contract.

They also seek insight into how the SEC distinguishes airdropped digital assets from other types of rewards like airline miles or credit card points, which are not subject to the same scrutiny.

Another point of contention is the potential market impact of classifying any digital assets distributed through airdrops as securities.

Emmer and McHenry ask for a detailed analysis on how this might affect the broader ecosystem and whether the SEC has considered the economic repercussions, including potential losses in tax revenue and economic growth due to the restrictive classification of these assets.

What’s Next: As these regulatory issues continue to unfold, industry stakeholders will gather at Benzinga's Future of Digital Assets event on Nov. 19, where key figures in the crypto and financial sectors will discuss the latest developments in the regulatory landscape.

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