The Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), joined House Majority Whip Tom Emmer (MN-06) in sending a letter to Securities and Exchange Commission (SEC) Chair Gary Gensler. The Congressmen are seeking clarity on the regulatory classification of digital asset airdrops.
Read the full letter to SEC Chair Gensler here or below:
“Dear Chair Gensler:
“We write to better understand the Securities and Exchange Commission's (SEC) consideration of the status of distributions of digital assets via ‘airdrops.’ Airdrops in this context are distributions of a digital asset to early users of a blockchain protocol. Airdrops used in this capacity are intended to incentivize participation on blockchain-based applications, which contributes to the continued development, initial governance, and ultimate decentralization of these networks. As such, airdrops play a crucial role in the development of a decentralized blockchain ecosystem. We are concerned that a misapplication of the securities laws will prevent this technology from achieving decentralization and its full potential.
“As you know, the ethos of crypto and blockchain technology is premised in decentralization. Yet, the SEC's regulatory approach seems to make the goal of decentralization impossible to obtain. 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.
“To that end, please provide responses to the following:
“The SEC's posture is that certain transactions in which digital assets that are given away for free or without payment satisfy the "investment of money" prong under the Howey Test and are therefore securities transactions. In recent court filings, the SEC has taken the position that digital assets, in and of themselves, are not securities. Does the SEC believe that giving away non-security digital assets for free implicates the Howey Test? If so, under what circumstances or arrangements?
“Companies routinely offer rewards to customers through intangible representations of value, such as airline miles or credit card points, without implicating the Howey Test. These rewards are distributed freely to encourage engagement, just as airdrops aim to engage users and developers in blockchain network's growth and decentralization. How does SEC distinguish between these rewards given away for free and digital assets air-dropped to an individual?
“As network becomes further decentralized values tokens driven by demand consumptive use akin commodity spot commodity transactions generally treated commercial transactions free direct government oversight how might classifying these tokens securities subjecting each transaction scrutiny sec impact ability chain applications exist function
“Has sec quantified market impact event sec classifies any amount digital assets securities if so please provide analysis
“Has sec ever considered potential loss economic growth tax revenue caused treatment air dropped digital assets securities if so please provide analysis
“Given sec unwillingness establish regulatory framework united states developers have been forced block Americans claiming ownership digital asset air drop includes individuals may have been building network otherwise contributing development prohibiting Americans participating air drops sec preventing American crypto users fully realizing benefits blockchain technology sec approach during your time chair only ensured next iteration internet riot designed Americans with American values which benefit our constituents
Please respond no later than September 30 2024 we appreciate your prompt attention request look forward response”