Uniswap Labs, developers of an effective decentralized trading platform, is being sued by the United States Securities and Exchange Commission. Uniswap Labs remains steadfast in its stance, persistently advocating for the classification of cryptocurrencies as securities. This discord emerged after Uniswap Labs received a Wells Notice from the SEC pointing out possible legal repercussions for functioning as an unincorporated exchange and broker-dealer.
In response, Uniswap Labs submitted a 40-page response to the SEC with sound reasoning against every issue highlighted by the SEC and arguing that tokens are not inherently securities. The SEC is increasingly extending definitions such as “exchange,” “broker,” and “investment contract” in relation to Uniswap’s actions, which Marvin Ammori, Uniswap Labs’ Chief Legal Officer, has condemned. He warned that this shift may pose potential risks to the entire cryptocurrency sector.
In the past year, the SEC has increasingly scrutinized the activities of companies in the cryptocurrency space. It seems that its focus is on the firms associated with Ethereum and DeFi, like ShapeShift, TradeStation, and ConsenSys. The SEC’s scrutiny has reportedly not spared even the Ethereum Foundation.
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The SEC’s case cannot differentiate between utility tokens, which act like a digital store of value, and those that can fall under the category of securities, as claimed by Uniswap Labs. Suppose the SEC proceeds with pursuing its legal case, alleging that Uniswap Labs operated an unregistered exchange. In that case, this may cause skepticism regarding the commission’s authority regarding tokens and can also impact other instances of ongoing regulation.
Despite these tensions, Uniswap Labs remains resolute in asserting its legal right to defend the SEC’s charges in court with the support of a team of lawyers who have won similar cases. Andrew Ceresney, the former head of enforcement at the SEC who recently defeated the agency for Ripple, and Don Verrilli, a former U.S. Solicitor General with Supreme Court experience, defend Uniswap, representing Grayscale in its recent victory over the SEC.
Specifically for decentralized exchanges like Uniswap, SEC Chairman Gary Gensler has constantly underscored the need for their regulation. He asserted that unregistered securities, such as most digital assets, warrant regulation. However, Uniswap Labs contends that the Howey Test, a legal tool for determining whether an agreement qualifies as an investment contract, does not apply to their governance token, UNI.
Additionally, Uniswap Labs raised concerns about the SEC’s position regarding the classification of liquidity provider (LP) tokens as securities. Specifically, the firm explains that LP tokens operate mostly as accounting tools rather than investment assets.
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In legal terms, Uniswap UNI has gained nearly 20% in the past 24 hours, trading at $9.34 as the market continues to break out of a two-month consolidation. Such an uplift indicates the high level of crypto-market volatility and the influence of regulatory actions and legal lawsuits on token prices. The outcome of this conflict could define essential guidelines for classifying and legalizing cryptocurrencies in the US.
