DeFi
SEC’s lawsuit against Uniswap is an opening attack on DeFi
Uniswap Labs, the Brooklyn-based company primarily responsible for developing the protocol of the same name, is said to have received A notice from Wells indicating that the U.S. Securities and Exchange Commission intends to file a lawsuit. While the decentralized finance (DeFi) giant has said it is “ready to fight” the SEC, indicating its willingness to go to court, the move represents the latest front in the SEC’s years-long battle with the crypto industry.
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And to some extent, this is entirely predictable. Before that, the SEC filed a lawsuit against US exchanges Coinbase and Kraken. In fact, the reason the industry is so familiar with the term “Wells Notice” is that Coinbase received one in the months before the SEC dropped its complaint. But this move also represents a serious escalation in the SEC’s anti-crypto legal barrage.
“Given the SEC’s ongoing prosecution of Coinbase and others, as well as their complete unwillingness to provide clarity or a path to registration for those operating legally in the United States, we can only conclude that this is the latest political effort to target even the best players building technology on blockchains,” Uniswap said in a blog post announcing the Wells notice.
The SEC’s biggest cryptocurrency cases so far have involved centralized institutions: the aforementioned centralized exchanges Coinbase and Kraken and the company behind the XRP cryptocurrency, Ripple. Suing the organization behind a decentralized protocol like Uniswap is uncharted territory.
Perhaps the closest example in the books would be the The SEC Case Against LBRYwhich created a decentralized alternative to YouTube and was forced to shut down after a lengthy appeals process with the US securities watchdog. The SEC alleges that LBRY sold unregistered securities through a utility token launch and initially sought a $22 million fine, but reduced that amount to $111,000 after acknowledging the company’s financial difficulties.
See also: What happens if the SEC classifies ETH as a security?
The ongoing international cases against the Tornado Cash developers could also be instructive, given that those cases in the United States and the Netherlands have become symbols of the responsibility of individuals for how their self-executing code is used after it is made public.
“The SEC is very imaginative in how you can break their rules,” Bill Hughes, senior counsel and director of global regulatory matters at Consensys, told CoinDesk. Part of the problem, presumably, is that Uniswap Labs runs the largest gateway to the Uniswap protocol via uniswap.orgAnother potential concern is the UNI governance token, launched to give users some control over the protocol’s governance, but which could be distorted to look like a securities offering.
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That said, Hughes doesn’t think the SEC will go after Uniswap token holders or users. “If you’re one of them and you’re a little bit panicked, take a breath and calm down,” he said. said on X“If they were going to sue you as well, then you would get an email from the SEC asking to speak to you on the phone. You won’t get one, so relax.”
Regardless, Hughes suggested that this is likely the biggest attack the SEC will launch against the DeFi industry. The SEC’s move “has been to go after someone in one category and then go after one or two others and then move on to another category… like going after Coinbase and then Kraken. We’ll see if they go after other DEXs.”
CORRECTION (April 11, 2024, 7:44 p.m. UTC): Fixes spelling of Uniswap name in title.