Abstract
A significant number of blockchain users is U.S.-based. However, regulatory ambiguity imposes barriers for U.S. users to fully and legally embrace blockchain technology, especially when it comes to cryptocurrencies. The industry remains rife with bad actors and inadequate regulation that consequently harm investors. Recently, a phenomenon known as cryptocurrency airdrops—widely viewed as “free” token distributions to incentivize blockchain adoption and promote decentralization—has drawn significant attention. But is this just another sham under the guise of the commonly touted “decentralization” ethos of blockchain technology?
The Securities and Exchange Commission (SEC) has maintained that most cryptocurrencies are securities subject to regulation. However, it has not clarified whether airdrops are securities, including the manner in which they are issued. In response, members of Congress have urged the SEC to provide clarity by emphasizing concerns about stifled innovation, missed financial opportunities, and the potential offshoring of blockchain advancements. Similarly, blockchain attorneys contend that because airdrops are freely distributed, they are not securities and are therefore exempt from SEC regulation.
This Article reveals, first and foremost, that, contrary to popular belief, airdrops are not free despite their misleading label. Airdrops have evolved from mere giveaways toward a model of financial reciprocity, where projects capitalize on cryptocurrency distributions to incentivize user adoption and investment. This finding reflects an increasing number of startup projects vying for limited user engagement, the process of which creates mutual financial interdependence between projects and their users. This Article argues that as long as airdrops involve such reciprocity, they constitute securities that fall squarely within the purview of SEC regulation.
Furthermore, this Article contends that while the public, members of Congress, and blockchain attorneys’ concerns regarding airdrops are valid, they overlook several critical issues. From a systemic perspective, airdrops fail to advance decentralization as the core ethos of blockchain technology. From a legal standpoint, airdrops create three alarming problems. First, project-user interactions often create express or implied-in-fact contracts, which may expose blockchain projects to civil liabilities over disputes about “fair” airdrop allocations. Second, these contractual relationships, while not necessary, evidence a quid pro quo financial arrangement that supports the economic reality analysis in the Howey test. This renders the issuance of airdrops investment contracts and, therefore, securities. Third, airdrops encourage unethical and manipulative practices, such as deceptive marketing, wash sales, and insider trading, that ultimately harm genuine users and investors. The totality of these problems necessitates regulatory oversight for adequate user protection.
Recommended Citation
Peter Sie,
Regulating Cryptocurrency Airdrops,
23
Nw. J. Tech. & Intell. Prop.
119
(2025).
https://scholarlycommons.law.northwestern.edu/njtip/vol23/iss1/2