Crypto projects that have airdropped tokens to users will hear from the authorities sooner or later.

That’s according to Elliot Chun, partner at Architect Partners, a firm that advises crypto companies on financing strategies.

“Regulators will revisit how some of these token airdrops happened,” he told DL News. “You’re going to get a knock on the door.”

Glacial pace

New crypto projects often reward early users of their protocols with tokens. These rewards — called airdrops — can be worth a few cents to tens of thousands of dollars.

“Some of the highest-profile projects” will catch law enforcement’s attention, Chun said.

“The only reason regulators aren’t going for some of the smaller projects is because they’re too small,” he added. “But if they could, they would.”

At issue is the possibility that insiders may have improperly benefited from the airdrop. For example, knowing which requirements to fulfil in order to get the maximum allocation.

“How many of the ICO-era projects have had the knock?” Chun said, referring to a period in 2017 and 2018 when companies would raise funds by issuing new coins to fund their development, sales known as initial coin offerings, or ICOs

Many of those firms were subsequently sued by the Securities and Exchange Commission — and at times were investigated by the Federal Bureau of Investigation.

The only reason airdrop issuers haven’t heard from regulators yet, Chun said, is because they move at a glacial pace.

“The regulators are so slow — they’re only just getting to Ethereum now,” he said, referring to the SEC’s investigation into the Ethereum Foundation.

And Uniswap, one of the first protocols to airdrop tokens, just received a Wells Notice from the SEC in April.

“Uniswap launched in 2018 and airdropped in 2020. So regulators are operating with a four-to-five-year lag,” Chun said.

Crypto market movers:

  • Bitcoin is up 0.21% at $71,085.62

  • Ethereum down 0.95% at $3,811.43

What we are reading:

  • Solana project with $1bn in deposits aims to reward ‘true believers’ with its airdrop — DL News

  • Kraken Considers Pre-IPO Funding Round Amid Crypto Market Rally — Milk Road

  • How the U.S. Government Can Protect the Dollar Through Stablecoins — Unchained

  • European Central Bank Cuts Key Interest Rates By 0.25% — Milk Road

  • Ex-FTX exec to join boss Sam Bankman-Fried in prison. Who is Ryan Salame? — DL News

Tom Carreras is a markets correspondent at DL News. Got a tip about airdrops? Reach out at tcarreras@dlnews.com