- Plaintiffs argue airdrops do not involve monetary investment or profit expectation, questioning their classification as securities.
- SEC maintains authority to regulate digital assets under securities laws, facing opposition from crypto advocates.
A lawsuit was filed in March against the SEC, seeking clarity on the regulatory stance towards token airdrops. The lawsuit, spearheaded by Beba and the DeFi Education Fund, challenges the application of traditional securities law—specifically the Howey Test—to airdrops, which are typically distributed free and without a promise of returns.
The central issue at hand is whether these airdrops should be considered an “investment of money” under U.S. securities laws. The plaintiffs argue that since airdrops do not involve a direct financial investment or a typical expectation of profit, they should not be regulated as investment contracts.
This perspective is supported by a legal filing from the Blockchain Association and Crypto Council, which suggests that the SEC’s current regulatory approach might be overreaching.
SEC’s Stance and Industry Concerns
SEC Chairman Gary Gensler has been vocal about his agency’s intention to regulate digital assets under existing securities frameworks. This approach has met with pushback from the crypto community, which views this as a potential overextension of the SEC’s legal authority.
1/ Today, @BlockchainAssn & @crypto_council filed an amicus brief in @fund_defi & @BebaCollection v. SEC. Does an airdrop mean there is an investment of money even if it’s free? The SEC says yes; plaintiffs say no. Plaintiffs are right. We explain why.https://t.co/9uVUn23PVN pic.twitter.com/OTIsAEJwM0
— Marisa Tashman Coppel (@MTCoppel) October 28, 2024
The community is concerned that such regulatory measures could hinder innovation by imposing traditional frameworks on fundamentally different digital transactions.
Implications for the Crypto Industry
The ongoing uncertainty in regulation has considerable implications for how crypto businesses operate in the U.S. Many fear that stringent regulations could drive innovation overseas or stifle the growth of a nascent industry that boasts significant economic potential.
The legal challenge aims to foster a more conducive regulatory environment that acknowledges the unique nature of cryptocurrencies and their method of distribution.
As the lawsuit progresses, it serves as a critical test case for the application of securities law to cryptocurrency airdrops. The outcome could set a precedent for how other digital assets are treated by regulatory bodies in the United States.
The Blockchain Association and Crypto Council continue to advocate for clarity and adaptation in regulatory practices to ensure that the U.S. remains a competitive leader in the global cryptocurrency market.
