U.S. Congressmen Tom Emmer and Patrick McHenry have voiced strong opposition to the Securities and Exchange Commission’s (SEC) approach to regulating blockchain technology, particularly its stance on digital asset airdrops. In a letter addressed to SEC Chair Gary Gensler, the lawmakers questioned the rationale behind the SEC’s classification of airdrops as securities, arguing that the agency’s position is flawed and could hinder innovation in the U.S. blockchain industry.
Airdrops, which involve the free distribution of tokens to early users, are a critical component of decentralized ecosystems. Emmer and McHenry argue that by labeling airdrops as securities, the SEC is creating unnecessary regulatory barriers that stifle the growth of blockchain technologies. “Airdrops play a crucial role in the development of decentralized networks,” they wrote, adding that the SEC’s position “hinders the growth of these technologies.”
The congressmen take particular issue with the SEC’s application of the Howey Test, a legal framework used to determine whether an asset qualifies as a security. While the SEC argues that some airdrops may meet the test’s “investment of money” criterion, Emmer and McHenry question the logic of this interpretation. They noted that the agency has previously stated digital assets themselves are not securities, yet is now suggesting that distributing them for free could trigger securities regulations.
In their letter, the lawmakers demand clarity on the circumstances under which free digital assets would qualify as securities under the Howey Test. They also point out the inconsistency in treating airdrops differently from other reward programs, such as airline miles or credit card points, which are not classified as securities despite being distributed without payment.
Airdrops, according to Emmer and McHenry, are vital for encouraging participation in decentralized networks, helping to establish governance and promote decentralization. The SEC’s approach, they argue, makes it nearly impossible for blockchain projects to achieve true decentralization, forcing many developers to exclude U.S. users from airdrops due to fears of regulatory enforcement.
The congressmen also raise concerns about the broader economic implications of the SEC’s actions. They are requesting that the SEC provide any analysis it has conducted on how classifying airdrops as securities could affect the market, economic growth, and tax revenue. They have set a deadline of September 30th for Gensler and the SEC to respond with detailed explanations.
This challenge to the SEC is just the latest in a series of difficulties for Gensler, who has faced growing opposition over his handling of crypto regulation. With former SEC staff members testifying against him, and both Republican and Democratic figures calling for his removal, Gensler’s position is increasingly under scrutiny.