Paid content produced in partnership with Bazoom Group. The information in this article is not intended to be personal financial advice.

Two US lawmakers, including Minnesota’s own Representative Tom Emmer, are pressing the United States Securities and Exchange Commission (SEC) Chair, Gary Gensler, for clear answers regarding the SEC’s stance on crypto airdrops.

These requests from the lawmakers come amid growing concern that the SEC’s regulatory approach could prevent innovation in the crypto industry and impact citizens' ability to participate in the decentralized internet of the future.

Rep. Emmer and Rep. Patrick McHenry (R-North Carolina) are asking Gensler to clarify how airdrops - crypto tokens given away for free - are being classified as securities. This classification could have significant implications for the crypto community.

For crypto enthusiasts looking for the best crypto to buy and who are deciding which exchanges to use, it is important to understand how regulatory decisions made by the SEC can impact future investments. Many view airdrops as an exciting way to get involved in blockchain networks, yet the SEC’s past and future actions could complicate the crypto landscape, making informed choices more important than ever.

Emmer and McHenry’s concerns stem from several past SEC lawsuits, the most notable being against Justin Sun and the firms behind the BitTorrent token (BTT), which were accused of offering unregistered crypto securities through monthly airdrops. They argue that the SEC is blurring the lines between securities laws and the world of decentralized finance and technologies.

In the letter addressed to Gensler, the lawmakers question how the SEC justifies treating airdrops (which are typically used for engagement and growth in blockchain ecosystems) as securities under the Howey Test—a legal standard from over 90 years ago used to determine whether an asset qualifies as a security.

They stated, “In recent court filings, the SEC has taken the position that digital assets… are not securities. Does the SEC believe that giving away non-security digital assets for free implicates the Howey Test?”

Emmer and McHenry pointed out that other rewards programs don’t fall under securities laws despite having similar functions to airdrops in promoting user participation: “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 the blockchain network’s growth and decentralization.”

They continued to question how the SEC distinguishes between these free rewards and digital assets that are airdropped to individuals.

As the lawmakers await Gensler’s response, requested by September 30th, the implications of this regulatory uncertainty remain up in the air. It also extends beyond the crypto sector, since if airdrops are classified as securities, it will discourage developers from offering these types of incentives, thereby limiting Americans’ access to blockchain technologies.

In addition to seeking clarity from the SEC, Emmer and McHenry also raised questions about the economic implications of treating airdropped tokens as securities. They’re requesting an explanation from Gensler about how the SEC’s stance may impact on-chain applications, tax revenue, and economic growth. Their argument centers around the fact that stringent regulations may result in no blockchain innovation in the US, causing the country to fall behind.

As the debate continues and answers are expected by the end of September, the crypto community will be watching closely. There might be changes in how crypto assets are regulated on the horizon, and the current inquiry into airdrops may just be the start of a much larger conversation around the role of government in the future of decentralized technology.

More From KROC-AM