The Securities and Exchange Commission warned Uniswap on Wednesday that it intends to bring an enforcement action against the company, which is a leading platform for DeFi, a segment of the crypto market where traders rely on computer protocols that act as automated market makers to exchange various tokens.
The warning came in the form of a so-called Wells notice, which the SEC sends to a company before a formal lawsuit is filed and which gives it a final chance to refute any allegations. In this case, the process will likely prove to be little more than a formality, as the agency has reportedly been investigating Uniswap for some time and is in the midst of a large-scale crackdown on the crypto industry.
When reached for comment, an agency spokesman said, “The Securities and Exchange Commission (SEC) does not comment on the existence or non-existence of a possible investigation.”
Luck the specific nature of the SEC’s charges against Uniswap Labs, the company that created the protocol of the same name but does not control it, remains to be seen. But based on the agency’s recent lawsuits against prominent cryptocurrency companies like Coinbase, the agency will likely argue that the firm illegally offered unregistered securities to the public or that it failed to register as a broker or exchange.
The looming lawsuit against Uniswap comes at a time when the crypto industry has loudly complained that the SEC is acting in bad faith when it comes to the sector, using enforcement actions despite clear rules and without taking into account the cryptocurrency’s distinct blockchain-based technology. SEC Chairman Gary Gensler responded that existing securities laws are clear and that the crypto sector requires special treatment, although it does not comply with them – a position that was supported by the White House and, especially, Gensler’s powerful ally, Senator Elizabeth Warren ( democrat). -Mass.).
The conflict between the SEC and the crypto industry has already resulted in a number of high-profile lawsuits, mostly involving Coinbase and Ripple, that address the SEC’s jurisdiction over digital assets and how the Supreme Court’s 1946 test defining securities should be applied. apply to cryptography.
Those lawsuits, which are ongoing, have produced mixed results that have allowed both sides to gain the upper hand, although the most recent ruling suggests the legal impetus lies with the SEC. However, the outcome of the Uniswap case is especially unpredictable given the unique nature of DeFi technology and the company’s notable legal victory last year in a class action lawsuit.
The stakes of any lawsuit between the SEC and Uniswap Labs will be high given that DeFi, once a tiny niche in the cryptocurrency market, has grown rapidly. Uniswap recently announced that the protocol has facilitated more than $2 trillion in transactions, and there is growing interest from mainstream finance in the potential of the underlying technology.
DeFi Platforms as Self-Driving Cars
Unlike regular brokerages or cryptocurrency exchanges, DeFi platforms do not have a central authority that acts as a counterparty to trades or sits between buyers and sellers. Instead, they rely on automated protocols controlled solely by code that sets trading rules, collateral requirements, and so on.
In the case of Uniswap Labs, founder Hayden Adams wrote the original core code behind the protocol, and the company provides an interface for users to trade specific crypto tokens. But the protocol itself is open source and is used by many other projects in the DeFi world.
This distinction was crucial in resolving a class-action lawsuit filed against Uniswap Labs last year, which alleged that the company was liable for defrauded traders. In that case, the plaintiffs argued that Adams built the equivalent of a dangerous self-driving car that went out of control.
Uniswap Labs also used the self-driving car metaphor, but said the technology it created was neutral and that whether people used it for harm or good was beyond its control. In a complex ruling detailing the nuances of DeFi, a federal judge sided entirely with Uniswap Labs, delivering a major victory for the DeFi sector.
Most recently, in a ruling last month in the SEC’s lawsuit against Coinbase, a judge declined to dismiss claims that the company offered illegal securities but ruled that Coinbase’s decentralized wallet offering could not be considered a broker for purposes of the SEC’s authority. This finding would likely strengthen Uniswap Labs’ position in any lawsuit with the SEC, although it does not take into account the company’s interface, which the company controls and which in the past has issued tokens that the SEC later deemed securities.
Told people close to Uniswap Labs Luck The company is prepared to put up a “good fight” in court and said the company’s legitimacy is reflected in the fact that it chose to operate in broad daylight in New York rather than offshore.