The SEC Thinks Crypto Airdrops Are Securities. Here's Why This Lawyer Thinks It's Wrong - Ep. 707
Episode publishedPodcast: UnchainedUnchained
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Just think that they're wrong on the law, and I think that the investment of money prong means money, investment of actual money.
Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I'm your host, Laura Shin, author of the Cryptopians. I started covering crypto 9 years ago, and as a senior editor, Forbes was the 1st mainstream media reporter to cover cryptocurrency full time. This is the September 20th 2024 episode of Unchained.
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Today's guest is Amanda Tuminelli, chief legal officer at the DeFi Education Fund. Welcome, Amanda. Thanks for having me. This week, Republican representatives Tom Emmer and Patrick McHenry sent a letter pressing SEC chair Gary Gensler for clarity on how securities laws apply to airdrops. Give us the backstory here. How was it that airdrops came to be viewed as potential securities offerings?
Sure. So I was actually really pleased to see this letter come out because the SEC has taken this position over a number of years that even a free air drop, even to unsuspecting users, the SEC says that can still constitute a securities offering, when digital assets are given for free to people. And, as representatives Emer and McHenry point out, that really doesn't make sense under the Howey test. Right? Howey requires there to be an investment of money, and there is no investment of money when there is a free airdrop. But the SEC's taken this position in a number of cases, which, are cited i
And so what is the SEC's theory, and why are representatives, Emer and McHenry, questioning whether it's been misapplied?
So it seems like from their letter, they understand the concept that the Howey test requires an investment of money. The SEC takes the position that even when there is a free airdrop of tokens, if the token creator asks people to do something in response or do something to pre, in order to receive the free airdrop, like promote on social media or in the Just In Sun case, there was, like, an emoji contest, like, asking people to participate in an emoji contest, according to the SEC, counts as compensation that they're saying counts as an investment of money under Howie. And, of course, they've
Oh, so it's more like it's an investment of time or effort. Is that kind of the thinking?
They're saying that even just liking something on social or promoting something on social counts as compensation, so something like money back to the token creator. So they're saying there really is an exchange of tokens for compensation. It's not a free airdrop. It's an airdrop in exchange for marketing and promotional value. Now I don't think that's what how the Howie court would agree with that. I think money means money, but I think that's the SEC's theory is, like, even a any kind of services in response for the token could count as compensation.
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