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Uniswap Labs denies crypto tokens are securities in SEC response
(Bloomberg) — Uniswap Labs, the creator of the largest decentralized trading platform on Ethereum, said a possible enforcement action against it by the U.S. Securities and Exchange Commission has no merit because the tokens Cryptographic files are not titles, but simply a form of files like PDFs.
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The New York-based startup on Tuesday disputed the allegation that it operates an unregistered exchange and broker. The response came after it announced last month that the SEC’s Enforcement Division had served it with a Wells Notice, informing Uniswap Labs that it planned to recommend legal action against it.
“The SEC’s entire case is based on the false assumption that all tokens are securities,” Marvin Ammori, chief legal officer of Uniswap Labs, said during a Zoom press conference Tuesday. “Tokens are actually just a file format. These are a value file format and are not inherently titles. The SEC essentially needs to unilaterally change the definitions of exchange, broker-dealer, and investment contract in order to try to figure out what we’re doing.
By suing Uniswap Labs for operating as an unregistered exchange, the SEC would be exposed to “serious risks of an adverse ruling regarding its authority over crypto tokens and precedent limiting the scope of the definition of ‘exchange’ in a manner which would undermine the SEC’s ongoing rulemaking. in this area,” Uniswap Labs wrote in a 40-page response to the SEC on Tuesday.
“We will take legal action if necessary,” Ammori said. “And if we plead, we will win.”
SEC Chairman Gary Gensler has long said that decentralized exchanges are not truly decentralized and fall under the jurisdiction of the regulator. Gensler also said that many digital assets are unregistered securities subject to SEC rules.
In its response, Uniswap Labs argued that UNI tokens, which are Uniswap’s governance token, are not securities because their token distributions do not meet the requirements of the Howey test, a ruling-based legal framework of the Supreme Court which defines investment contracts. He also disputed the SEC’s assertion that LP tokens, a special type of token that a user gets when they put money into a pool on Uniswap that helps traders trade different tokens, are securities.
“The LP token is used as an accounting device to track the assets the user has contributed to the smart contract and the fees collected on the user’s liquidity,” the company said. “In other words, LP tokens are not issued for investment purposes, but rather as accounting tools, and therefore they are not securities.”
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