YEREVAN (CoinChapter.com) — Republican lawmakers have reached out to Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), seeking clarification on the agency’s current policies concerning crypto airdrops. Representatives Tom Emmer and Patrick McHenry issued a letter dated September 17, urging Gensler to address their concerns promptly. Consequently, they have requested a response before the month’s end.
SEC’s Actions on Crypto Airdrops Under Scrutiny
Emmer and McHenry raised questions about the SEC’s legal actions involving airdrops, expressing concerns over how the commission may be classifying them as securities. The lawmakers referenced recent lawsuits to demonstrate the SEC’s treatment of airdrops, citing the Hydrogen Technology Corporation case from September 2022, where the SEC labeled the distribution of 11 billion Hydro tokens as an “unregistered offer and sale of securities.” In another instance, in March 2023, the SEC filed a lawsuit against Justin Sun and several firms for allegedly offering and selling BitTorrent (BTT) in monthly airdrops, which the commission also claimed were unregistered securities.
These legal moves have raised concerns within the crypto industry, as unclear regulatory guidelines could limit the use and development of airdrop technology.
Lawmakers Concerned About Impact on Crypto and Decentralization
Emmer and McHenry’s letter stresses potential harm to blockchain development, particularly its decentralization. Additionally, they argue that regulatory overreach might block U.S. citizens from contributing to internet advancements through crypto innovations.
“We are concerned that a misapplication of the securities laws will prevent this technology from achieving decentralization to its full potential,”
the lawmakers wrote, warning that the SEC’s approach could stifle innovation.
Key Questions on Crypto Airdrops and the Howey Test
In their letter, Emmer and McHenry posed five key questions for Gensler regarding the SEC’s treatment of airdrops. They requested clarification on how the SEC applies the Howey test—a legal standard used to determine whether an asset qualifies as a security—to crypto airdrops. Specifically, the lawmakers questioned how tokens that are “given away for free” can be classified under this test.
They also sought to understand how airdrops are distinguished from other types of rewards, such as credit card points. They also questioned what the economic impact might be if the SEC continues to classify airdrops as securities. The representatives stressed the need for transparency and asked whether the SEC had fully assessed the broader market implications of its actions.
SEC’s Approach Could Hinder U.S. Blockchain Leadership
Moreover, Emmer and McHenry contend that the SEC’s current position could potentially stifle American innovation within the crypto and blockchain sectors. Furthermore, they argue that by restricting access to airdrops, the SEC is effectively hindering American users from fully capitalizing on the advantages of blockchain technology.
“The SEC’s approach during your time as Chair has only ensured the next iteration of the internet is not designed by Americans or American values, which is not to the benefit of our constituents,”
the letter states.
In fact, this is the second instance within a week where Republican lawmakers have raised concerns about Gensler’s leadership at the SEC. Previously, on September 10, several lawmakers voiced worries that the SEC’s hiring practices might reflect a political bias. Consequently, they alleged that the agency had recruited individuals from left-leaning organizations. They argue that this is a pattern that could compromise the SEC’s impartiality.
As of now, the SEC has not responded to the letter or to the concerns raised about its hiring decisions.
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