Two outstanding U.S. lawmakers, House Majority Whip Tom Emmer and House Financial Services Committee Chairman Patrick McHenry, have raised issues over the Securities and Exchange Commission’s (SEC) strategy to classifying airdrops as securities. In a letter dated September 2024, they addressed SEC Chair Gary Gensler, questioning the company’s stance on airdrops.
Contents of Letter To Gary Gensler
The letter highlights the significance of airdrops within the blockchain ecosystem. It describes them as “distributions of a digital asset to early users of a blockchain protocol.” Moreover, the lawmakers acknowledged that crypto airdrops “play a crucial role in the development of a decentralized blockchain ecosystem.”
According to the lawmakers, airdrops incentivize participation in blockchain-based functions, contributing to the community’s decentralization and governance. The letter criticized the SEC beneath Gary Gensler’s management for stifling the expansion of blockchain by making a “hostile regulatory environment.”
The lawmakers argued that the SEC’s actions are making “the goal of decentralization impossible to obtain” and stopping the know-how from reaching its full potential. They additional allege that by issuing enforcement actions and warnings, the SEC is “putting its thumb on the scale” and precluding U.S. residents from taking part within the growth of the web’s subsequent technology.
In addition, Emmer and McHenry posed a collection of pointed inquiries to Gary Gensler. They sought clarification on the SEC’s interpretation of securities legislation in relation to airdrops. A key query is whether or not the SEC believes that gifting away digital property totally free may set off the Howey Test.
For additional context, the Howey Test is the authorized commonplace for figuring out if a transaction qualifies as an funding contract beneath U.S. legislation. This query additionally arises because the property themselves will not be labeled as securities.
The lawmakers wrote, “Does the SEC believe that giving away non-security digital assets for free implicates the Howey Test? If so, under what circumstances or arrangements?” The letter additionally compares crypto asset airdrops to different types of shopper rewards.
Questions To SEC Chair
The rewards embody airline miles or bank card factors, which don’t fall beneath the Howey Test. “How does the SEC distinguish between these rewards, given away for free, and digital assets airdropped to an individual?” the lawmakers requested.
Additionally, the letter to Gary Gensler additionally raises issues in regards to the potential affect of classifying digital tokens as securities on the broader blockchain ecosystem. Emmer and McHenry identified that as networks change into extra decentralized, token values are pushed by “demand for their consumptive use, akin to a commodity.”
They warned that the SEC’s strategy may hinder the flexibility of on-chain functions to perform. Hence they requested, “How might classifying these tokens as securities and subjecting each transaction to the scrutiny of the SEC impact the ability for on-chain applications to exist or function?”
The lawmakers additionally requested information on whether or not the SEC has quantified the financial affect of classifying digital property as securities. This comes notably when it comes to potential lack of financial progress and tax income. Furthermore, they famous that builders are already blocking American customers from taking part in airdrops as a result of SEC’s regulation.
Emmer and McHenry requested a response from Gensler by September 30, 2024. Meanwhile, the company gears up for a September 18 congressional hearing on political bias in crypto regulation.
Kelvin Munene Murithi
Kelvin is a distinguished author with experience in crypto and finance, holding a Bachelor’s diploma in Actuarial Science. Known for his incisive evaluation and insightful content material, he possesses a robust command of English and excels in conducting thorough analysis and delivering well timed cryptocurrency market updates.
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