ICO airdrops are the latest crypto craze. What are they? What are the legal implications? Let’s dive in.
What Are ICO Airdrops?
First things first: What, exactly, are cryptocurrency airdrops?
Sorry to disappoint, but no, planes don’t fly over locations releasing actual coins en route. Instead, startups create an altcoin for their endeavors, and then “drop” them, free of charge, into crypto wallets.
In most instances, the airdrop teams list their events on sites like airdrops.io and ask participants to perform tasks — like posting something on social media, inviting other users, or joining a channel — to claim tokens. Other times, ICOs randomly distribute tokens without any required action. Whichever the method, the bottom line is that airdrops are primarily a marketing tool used to spark chatter about an ICO or crypto startup.
The Legalities of ICO Airdrops
What’s the most common question regarding cryptocurrency airdrops: Are they legal? Reply: There’s no clear answer. The details dictate the outcome. However, thanks to a recent incident, we do have a better idea of where authorities stand on cryptocurrency airdrops.
Maybe you’ve already heard about it? A startup, Tomahawk, launched an airdrop. But in the end, the SEC came knocking. According to the commission, the company used “fraudulent marketing strategies to raise funds.” Specifically, according to the complaint:
Tomahawk and Laurance violated Sections 5(a) and 5(c) of the Securities Act by offering and selling TOM without having a registration statement filed or in effect with the Commission or qualifying for an exemption from registration with the Commission.
In other words: Free tokens fall under the securities umbrella. And as such, companies must comply with securities and other laws before distributing them to investors.
In the Tomahawk case, the SEC issued a lifetime ban against the startup.
Connect With A Cryptocurrency and ICO Lawyer About Airdrops and Other Compliance Matters
There are ways to do a compliant airdrop. A lot depends on structuring, location, and the financial status – (example: Are they accredited?) – of the airdrop’s recipients.
Our strong tech background, make us an ideal choice for fintech startups, businesses, and investors. Moreover, our cryptocurrency legal team can help structure compliant airdrops.
Let’s talk. Once we know the situation, we can craft solutions and walk you through the pros-and-cons of each. In the end, you’ll be ideally positioned for maximum profit — and Uncle Sam won’t be darkening your doorstep.
The initial consultation is on us. You have nothing to lose. Get in touch today to begin the conversation.Connect With An ICO Lawyer»