SEC’s Approach to Airdrops Under Scrutiny as House Republicans Press Gary Gensler for Answers

House Republicans Tom Emmer and Patrick McHenry are pressing SEC Chair Gary Gensler for clear answers on how the Securities and Exchange Commission (SEC) classifies cryptocurrency airdrops.

House Republicans are pressing Securities and Exchange Commission (SEC) Chair Gary Gensler to provide clear answers on how the agency classifies cryptocurrency airdrops, following concerns raised over recent SEC legal actions.

In a letter sent to Gensler on September 17, Representatives Tom Emmer (R-MN) and Patrick McHenry (R-NC) expressed concerns about the SEC's recent legal actions, where airdrops were labeled as “unregistered securities.” The lawmakers urged Gensler to respond by September 30, outlining how crypto airdrops fit into the SEC's regulatory framework.

The SEC's treatment of airdrops in lawsuits has sparked concern. In 2022, the agency sued Hydrogen Technology Corporation for market manipulation involving Hydro tokens distributed via airdrops, labeling them as “unregistered securities.” In 2023, the SEC similarly accused Justin Sun and firms linked to BitTorrent of offering unregistered monthly airdrops of BTT tokens. These cases, cited by Emmer and McHenry, have raised alarms about the SEC potentially overreaching by applying securities laws to crypto giveaways.

The lawmakers are particularly concerned that the SEC's stance could hinder blockchain innovation and the growth of decentralized technologies. They argue that classifying airdrops as securities could prevent the technology from reaching its full potential. This approach could also have negative economic consequences, including reduced tax revenues and stifled job creation in the blockchain sector.

“We are concerned that misapplying securities laws could hinder the full potential of decentralization,” the letter states. Emmer and McHenry argue that restricting U.S. citizens from participating in airdrops may prevent them from fully reaping the benefits of blockchain technology, impacting the broader U.S. economy.

The letter includes five key questions for Gensler, addressing the SEC's approach to airdrops. The lawmakers asked how crypto “given away for free” fits within the Howey test, which determines whether an asset qualifies as a security. They also asked how the SEC distinguishes airdrops from other rewards like credit card points, and whether the agency has evaluated the economic and market impact of its stance.

Additionally, they raised concerns about the potential consequences of labeling airdropped tokens as securities, asking if the SEC had assessed how this could affect on-chain applications, innovation, and the broader economy.

This letter follows another sent by Republican lawmakers to Gensler earlier this month, expressing concerns about the SEC's hiring practices and potential political bias. The latest letter adds to the pressure on Gensler to address concerns over the SEC's approach to regulating cryptocurrencies.