Vol.15 Issue 2 (2019)

It’s Raining Crypto: The Need for Regulatory Clarification When it Comes to Airdrops

Carol R. Goforth

Worldwide regulatory restrictions have pushed crypto entrepreneurs to take creative and novel approaches in their struggle to create viable user networks for new tokens. One of the most interesting vehicles for dispersing tokens is the ‘airdrop’, a process by which a developer essentially ‘gives away’ tokens. The developers’ motives in these airdrops are typically not completely altruistic. Instead, the goal is to increase the ‘buzz’ about new forms of crypto, and to encourage recipients to voluntarily promote the token that they now also own. The regulatory reaction to this technique has been mixed. A few nations, most notably China, have banned airdrops. Most other countries, however, have been less drastic and more ambiguous in their responses. This article lays out some of the current reactions to crypto airdrops and explains why it generally does not make sense not to treat them as involving the distribution of a security. Only where the airdrop crosses the line and requires more than a token effort (no pun intended) is regulation warranted. Where that line should be drawn is left to individual nations.

Author

Carol R. Goforth is a University Professor and the Clayton N. Little Professor of Law at the University of Arkansas, in Fayetteville, Arkansas, USA. She has decades of experience with corporate, securities, and business law issues in the US, and has recently published a number of articles and blog posts dealing with the regulation of crypto transactions.