Crypto Airdrop Rules? Crypto Firm Paradigm Asks SEC for Clear Guidelines

• Paradigm urges SEC clarity on the regulatory status of airdrops in crypto markets.  
• Proposal seeks clear guidelines to determine if airdrops qualify as securities offers.  
• Paradigm calls for clarity to avoid legal risks in digital asset distributions.

Paradigm Operations LP has officially submitted a proposal to the U.S. Securities and Exchange Commission (SEC) Crypto Task Force, pushing for regulatory clarity on how to handle digital asset distributions through airdrops.

This proposal is about growing concerns in the crypto market regarding the regulatory status of airdrops, a common method of distributing digital assets. The firm seeks clear guidelines from the SEC to help industry participants resolve the questions around the legal status of these distributions under U.S. securities laws.

Airdrops: Used Widely But Legal Status Unclear

Lots of people in the crypto space use airdrops, which involve distributing digital assets for free or in exchange for minimal actions to promote products, engage communities, or reward users.

However, the SEC has not clearly said whether such distributions should be considered securities offerings. Paradigm’s proposal argues that digital asset distributors could face legal risks without clarity, possibly breaking U.S. securities laws.

Related: Buterin’s Take on Airdrops: A Use Case for Blockchain Identity

Paradigm: Focus on Airdrop Regulation, Not Token Status

The proposal suggests that it does not seek to determine whether digital assets are securities but focuses on airdrops’ regulatory status. 

According to Section 5 of the Securities Act of 1933, any offer or sale of securities requires registration with the SEC.

Related: Paradigm Backs Binance, Asks Court to Dismiss SEC Ongoing Lawsuit

Airdrops May Fall Under SEC Rules – Clarity Needed

This definition of sale and offer can include actions that do not include direct monetary exchange. Therefore, Paradigm’s request for clarity is about determining when airdrops fall within these broad definitions and require regulatory oversight.

Furthermore, Paradigm suggests that airdrops should not be seen as securities offers if certain conditions are met. 

For example, airdrops should not be considered a sale if they are issued without promising future eligibility for further distributions or if the issuer does not solicit payment or digital assets in exchange.

Airdrop Examples: When Are They NOT Securities?

The proposal gives several practical examples to show situations where airdrops should not be seen as offers or sales of securities. 

These examples include a range of cases, like distributing assets to holders of other tokens, rewarding software application users for their activity, or offering loyalty points that may later be exchanged for digital assets but without guaranteed future value.

Paradigm calls for the need for regulatory clarity to allow the continued growth of the crypto industry. The firm has stated its willingness to work more with the SEC as the task force continues to review the classification of airdrops and other crypto-related regulatory issues.