In recent months, the U.S. Securities and Exchange Commission (SEC) has asserted that certain crypto airdrops may qualify as securities offerings, igniting significant debate within the cryptocurrency community.
The SEC argues that even when tokens are distributed for free, if recipients perform any action in return—such as promoting the token on social media—it could be considered “compensation.” This interpretation means the airdrop could be classified as a security under the Howey Test, a legal standard used to determine whether a transaction qualifies as an “investment contract.”
Cases involving companies like Tomahawk, Hydrogen, and figures like Justin Sun have been cited by the SEC to support this position. In these instances, the SEC expanded the definition of “investment of money” to include actions like marketing or promoting a project, not just financial contributions.
This perspective has caused confusion and concern in the crypto space, where airdrops are often used to encourage community engagement without traditional investment models.
Amanda Tuminelli’s Critique
Amanda Tuminelli, Chief Legal Officer at the DeFi Education Fund, has publicly challenged the SEC’s interpretation of the Howey Test. She contends that the SEC is stretching the definition of “investment of money” too far by including time or effort as forms of compensation.
“For an arrangement to be considered an investment contract, there should be a direct financial contribution,” Tuminelli argues. She believes the SEC is conflating non-monetary actions, like promoting a token, with actual monetary investments. This, she says, leads to unnecessary legal uncertainty for projects aiming to offer free tokens to users.
Amanda and The DeFi Education Fund have filed a lawsuit against the SEC on behalf of Beba, a company planning to conduct free token airdrops. The lawsuit seeks a legal declaration that such airdrops do not constitute securities offerings. While the case is still unfolding, it highlights the ongoing tension between crypto advocates and regulators over how laws should apply to decentralized projects.
Implications for the Crypto Community
The SEC’s position has sent ripples through the broader crypto community. Many projects are now restricting U.S. users from participating in airdrop campaigns to avoid legal complications. However, users often bypass these restrictions using VPNs and other methods, further complicating the regulatory landscape.
If the SEC continues to tighten its interpretation of securities laws, there is concern that innovation in the U.S. crypto space could be stifled. Airdrops have long been a tool to bootstrap projects and distribute tokens to early adopters, fostering community growth. Classifying airdrops as securities offerings could make it difficult for startups to engage with their user base without facing legal risks.
Industry experts warn that increased regulatory scrutiny may drive more crypto projects overseas, where regulations are less stringent. This could hinder the U.S.’s competitiveness in the rapidly growing blockchain and decentralized finance (DeFi) sectors.
SEC vs Crypto Community
The ongoing battle between the SEC and the cryptocurrency industry centers on whether crypto assets should be classified as securities. Under Chair Gary Gensler, the SEC has aggressively applied the Howey Test to argue that many crypto assets fall under its regulatory scope.
The crypto industry, however, argues that digital assets—especially those traded on secondary markets—do not meet the criteria for securities. Companies like Coinbase assert that the decentralized nature of cryptocurrencies distinguishes them from traditional securities and that new regulatory frameworks are necessary.
Ultimately, the resolution of this debate will shape the future of the crypto market in the U.S., determining whether it can thrive under current regulatory structures or if new legal frameworks are needed.