Paradigm Operations Proposes Regulatory Clarity on Airdrops

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

> .@paradigm met last week with @HesterPeirce’s @SECGov Crypto Task Force, specifically to discuss airdrops + how the SEC should think about them.
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> While Congress figures out how to define assets themselves, the SEC can share exemptive guidance that would clarify airdrop issuance. pic.twitter.com/Z0WjxvltNA
> — Alexander Grieve (@AlexanderGrieve) February 24, 2025

Airdrops: Used Widely But Legal Status Unclear

Airdrops, which involve distributing digital assets for free or in exchange for minimal actions, are widely utilized in the crypto space to promote products, engage communities, or reward users. However, the SEC has not provided clear guidance on whether such distributions constitute securities offerings. Paradigm’s proposal highlights that digital asset distributors might face legal risks due to this ambiguity, potentially violating U.S. securities laws.

Paradigm: Focus on Airdrop Regulation, Not Token Status

Paradigm’s proposal does not seek to determine whether digital assets are securities, but instead focuses on the regulatory status of airdrops. According to Section 5 of the Securities Act of 1933, any offer or sale of securities requires registration with the SEC.

Airdrops May Fall Under SEC Rules – Clarity Needed

The definition of sale and offer can include actions that do not involve direct monetary exchange. Consequently, Paradigm’s request for clarity revolves around identifying when airdrops fall under these broad definitions, necessitating regulatory oversight. Paradigm suggests that airdrops should not be treated as securities offers if certain conditions are met, such as no promise of future distributions or no solicitation for payment.

Airdrop Examples: When Are They NOT Securities?

The proposal includes various examples where airdrops should not be recognized as offers or sales of securities. These scenarios include distributing assets to holders of other tokens, rewarding software application users for their activities, or providing loyalty points exchangeable for digital assets without guaranteed future value.

Paradigm emphasizes the importance of regulatory clarity to foster the ongoing growth of the crypto industry and expresses its willingness to collaborate further with the SEC as the task force continues to examine the classification of airdrops and other crypto-related regulatory issues.

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