US Lawmakers Slam SEC Chair Gary Gensler Over Airdrop Securities Classification

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As a seasoned researcher with a penchant for blockchain technology and its implications, I find myself intrigued by this recent development between U.S. lawmakers and the Securities and Exchange Commission (SEC). The letter penned by House Majority Whip Tom Emmer and House Financial Services Committee Chairman Patrick McHenry raises legitimate concerns about the SEC’s stance on classifying airdrops as securities, particularly under Gary Gensler’s leadership.

Two significant American politicians, Representative Tom Emmer and Chairman Patrick McHenry of the House Financial Services Committee, have expressed worries about the Securities and Exchange Commission (SEC) labeling airdrops as securities. In a letter penned in September 2024, they directly addressed SEC Chair Gary Gensler, challenging the agency’s viewpoint on airdrops.

Contents of Letter To Gary Gensler

The letter highlights the importance of airdrops in the blockchain ecosystem. It describes them as “distributions of a digital asset to early users of a blockchain protocol.” Moreover, the lawmakers stated that crypto airdrops “play a crucial role in the development of a decentralized blockchain ecosystem.”

As lawmakers suggest, airdrops encourage people to engage with applications on blockchains, thereby promoting its decentralization and self-governance. The letter expressed concern over the Securities and Exchange Commission (SEC) under Gary Gensler’s leadership, arguing that their regulations are hindering the expansion of blockchain technology by creating a hostile regulatory climate.

Critics claim that the Securities and Exchange Commission’s (SEC) actions are hindering the goal of decentralization, making it difficult to achieve. They also argue that these enforcement actions and warnings could be unfairly influencing the growth of the technology, potentially restricting American citizens from contributing to the evolution of the internet’s future phases. In other words, they suggest that the SEC is favoring certain parties by exerting undue influence, thereby limiting U.S. residents’ involvement in developing the internet’s next stage.

Moreover, Emmer and McHenry raised several pertinent questions to Gary Gensler. They aimed to understand how the Securities and Exchange Commission (SEC) classifies securities law in light of airdrops. One pivotal query revolves around whether the SEC considers distributing digital assets without charge as a potential trigger for the Howey Test.

In simpler terms, the Howey Test is used to decide whether a financial transaction falls under the definition of an investment contract according to American law. The confusion stems from the fact that the assets involved in the transaction aren’t categorized as securities.

The legislators inquired, “Does the Securities and Exchange Commission consider that distributing non-security digital assets without charge triggers the Howey Test? If yes, under which scenarios or conditions might this occur?” Additionally, the correspondence draws parallels between crypto airdrops and other types of incentives offered to consumers.

Questions To SEC Chair

“The benefits offered are airline loyalty points or credit card rewards, which are not considered as ‘investment contracts’ according to the Howey Test. The legislators have inquired about how the SEC differentiates these complimentary rewards from digital assets that are distributed to individuals.

Furthermore, the letter addressed to Gary Gensler expresses apprehensions about how labeling digital tokens as securities might affect the broader blockchain infrastructure. Emmer and McHenry emphasize that as networks grow more decentralized, token values are influenced by “the demand for their practical use, similar to a commodity.

They expressed concern that the Securities and Exchange Commission’s (SEC) method could potentially restrict the operation of on-chain applications. So, they questioned, “What could be the implications if these tokens are classified as securities and each transaction is reviewed by the SEC, potentially affecting the existence or functionality of on-chain applications?

Lawmakers additionally asked for information about if the Securities and Exchange Commission (SEC) has calculated the financial effect of categorizing digital assets as securities. This is important considering the potential decrease in economic expansion and tax income, along with the observation that developers are already restricting American users from receiving airdrops due to SEC regulations.

By September 30, 2024, Emmer and McHenry are asking for a reply from Gensler. At the same time, the agency is preparing for a September 18 congressional hearing regarding potential political bias in cryptocurrency regulation.

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2024-09-18 00:04