The U.S. Securities and Exchange Commission (SEC) has issued a Wells notice accusing decentralized finance platform Uniswap of being an unregistered securities or broker-dealer. Uniswap, which has processed over $2 trillion in transactions, has attracted attention for its growth. The founder of Uniswap maintains that the platform is legal, but the SEC is more concerned with protecting opaque systems rather than consumers. The battle against government agencies could last for years, but Uniswap believes that the fight for freedom and DeFi is worth it. Uniswap will continue to operate.
Uniswap, a decentralized cryptocurrency exchange, revealed on Wednesday that it has received a notice from the U.S. Securities and Exchange Commission (SEC) stating its intention to take enforcement action. Uniswap’s native token, UNI, immediately dropped 9.5% upon the news.
During a press conference on Wednesday afternoon, Uniswap’s Chief Operating Officer Mary-Catherine Ladd and Chief Legal Officer Marvin Ammori told reporters that the Wells notice focuses on Uniswap as an unregistered securities broker and unregistered securities exchange. It is currently unclear whether Uniswap’s native token UNI is implicated as a potential security in the SEC notice.
Ammori stated that he believes Uniswap does not meet the SEC’s current definition of an exchange. He also pointed out that the recent ruling on Coinbase’s case – in which a judge stated that Coinbase’s wallet is not a broker – is a good sign that Uniswap has the ability to defeat similar charges from the SEC (the judge ruled that the SEC’s other charges against Coinbase can proceed).
According to information released by Fortune magazine, the SEC has taken action to sue UniSwap (UNI), a leading decentralized finance (DeFi) platform, in order to hinder the rapidly growing DeFi industry.
The U.S. Securities and Exchange Commission (SEC) has issued a Wells notice to Uniswap, a leading decentralized finance (DeFi) platform, informing them of its intention to sue the company. A Wells notice is a preliminary warning that informs recipients that regulatory agencies are considering charges against them. They typically lead to enforcement actions.
The SEC has been investigating Uniswap. The specific charges against Uniswap Labs (the company that developed the Uniswap protocol but does not control it) by the agency are unclear. However, based on recent lawsuits filed against other cryptocurrency companies like Coinbase, the SEC may accuse Uniswap Labs of offering unregistered securities to the public or operating as an unregistered broker or exchange.
Uniswap recently announced that its protocol has processed over $2 trillion in transactions, indicating increasing interest from the mainstream financial industry in this technology. Insiders close to Uniswap Labs told Fortune that the company is prepared to put up a good fight in court. They believe that the company’s decision to operate openly in New York, rather than overseas, demonstrates its legitimacy.
In response to the SEC’s threat of litigation, Uniswap founder Hayden Adams released the following statement:
“Today @UniswapLabs received a Wells notice from the SEC.
I’m not surprised. Just annoyed and disappointed and ready to fight.
I believe the product we’ve built is legal and the work we do is important. But it’s been clear for some time that the SEC is not interested in providing clear, informed rules and instead is focused on attacking long-standing, good actors like Uniswap and Coinbase. And they let bad actors like FTX off scot-free.
When I set out to build Uniswap, the goal was not to reimagine finance.
It was an experiment in fully decentralized, fully automated on-chain markets. I didn’t know if it would work or if anyone would use it.
Today, the Uniswap protocol has processed over $2 trillion in volume. Thousands of teams and developers have forked our code or built on top of it. We’ve built transparent, fair, secure, and accessible new financial infrastructure that powers the entire industry.
Our team @UniswapLabs has done all of this from our office in New York.
People often ask me why I stayed in the U.S., and the answer is simple: I believe in the power of blockchain technology. Like the internet, it’s here to stay. So someone needs to solve this problem, and that someone might as well be us.
And when you create technology that can improve people’s lives, you don’t hide from it.
The mission of the SEC is to ‘protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.’ It’s a noble mission. I think @UniswapLabs does a better job of it than the SEC.
Yes, it’s frustrating that the SEC seems more interested in protecting opaque systems than protecting consumers. But to protect our company and our industry, we have to fight the U.S. government.
This fight will take years, perhaps all the way to the Supreme Court, and the future of fintech and our industry hangs in the balance. But if we stand together, we can win.
I believe freedom is worth fighting for. I believe DeFi is worth fighting for.
And of course, we won’t stop operating. Stay tuned!”
Uniswap Official Blog Post:
“Fighting for DeFi
Today, Uniswap Labs received a Wells notice from the SEC’s Enforcement Division, informing us that they intend to recommend legal action against us. During this time, we will continue to offer our existing suite of products and deliver new ones. Given the SEC’s lawsuits against Coinbase and others, and their complete unwillingness to provide clear information or pathways for companies operating legally in the United States, we can only conclude that this is the latest political effort to target the best builders in the blockchain space.
While the SEC claims that “most” tokens are securities, the reality is that tokens are a digital file format, much like a PDF or spreadsheet, capable of storing a wide range of value. They are not inherently securities, just as every piece of paper is not a stock. The vast majority of tokens traded on Uniswap are absolutely not securities – they are stablecoins, community and utility tokens, and commodities like Ethereum and Bitcoin. The tokens traded on secondary markets like Uniswap are also not investment contracts. In cases where tokens may represent securities, the SEC refuses to provide a pathway for companies to register.
We believe that the products we offer are not only legal but also transformative. They make markets transparent, verifiable, and reduce gatekeepers, enabling people to participate in global economic activities cheaply and conveniently, thereby enhancing the power of people worldwide.
Who We Are?
Uniswap Labs is a U.S.-based software company headquartered in New York. Our founder and CEO, Hayden Adams, invented the Uniswap protocol as an attempt to build software that embodies the advantages of decentralized Ethereum blockchain. These advantages include core functionality that cannot be changed, access that cannot be restricted, and no single or centralized control point.
The Uniswap protocol brings unprecedented innovation to market structures. Transparent execution. Shared infrastructure based on open-source code, rather than walled gardens. Self-custody of assets, without depending on potentially mismanaged institutions. Direct, fully automated trades without intermediaries (often monopolistic). Additionally, with Uniswap protocol’s automated market makers, anyone can create markets for illiquid assets, which is not possible in traditional structures or with traditional intermediaries.
Six years ago, the functionality of automated market makers was still theoretical and did not exist. Now, the Uniswap protocol has been widely adopted in the cryptocurrency space and has become a critical infrastructure for the blockchain market. It is the largest use case for Ethereum, utilizing 25% of Ethereum’s block space. It has processed $2 trillion in transactions with no hacks. It has been integrated into thousands of applications built by teams around the world and is the most widely copied open-source smart contract protocol, with over 2,000 copies.
Uniswap Labs has created a fully blockchain-based consumer trading platform. Our mobile application allows users to custody their own assets, like personal safes on the blockchain that only the owner can access. Our website enables users to buy and sell tokens securely.
We do this work because we believe blockchain can offer consumers in the United States and around the world more choices and the ability to control their own assets. We think it’s worth fighting for.
If the SEC protects opaque systems and attacks transparent new technologies that bring opportunities and cost reductions to Americans, the United States will fall behind in innovative areas that offer consumers choice and freedom. We are disappointed that we may have to fight against government agencies to protect innovation and economic freedom.
The law is clear
Regardless of what the SEC decides to do, the law is clear on these issues:
No congressional authorization: The SEC only has jurisdiction over securities, such as assets that are legally classified as “investment contracts.” The court ruling in the SEC v. Ripple Labs case made it clear that secondary market trading of digital assets generally does not constitute investment contracts. And these are the majority of assets traded on the Uniswap protocol. SEC Chairman has even acknowledged in congressional testimony that new regulation for tokens requires a new law passed by Congress – the SEC does not have the authority. We have had a decisive legal victory in Risley v. Uniswap Labs, which emphasized the need for Congress, not the SEC, to address securities law pertaining to cryptocurrencies – recognizing that securities law for private plaintiffs “is best left to Congress.” And the fact that the SEC recently settled with Shapeshift solely on broker-dealer issues, completely ignoring their status as a DEX, speaks clearly to a pattern of arbitrary enforcement that is only possible when an agency’s actions are divorced from specific laws.
No securities exchange or broker: Even if the SEC’s arguments following the Ripple Labs ruling and the Howey test from the Supreme Court have not been ruled out, Uniswap protocol, apps, and wallets still do not meet the legal definitions of securities exchanges or brokers. This has been made clear in the recent ruling against Coinbase by the SEC, where the court, in the initial stages of the case, rejected the SEC’s claims that cryptocurrency wallets are brokers, even when they charge fees. Even the SEC seems to know that its existing legal definitions do not cover the choice of self-custody on-chain, which is why the agency proposed new exchange rules last year in an attempt to cover this activity. These rules have not been enacted, and we have explained why these rules would be overturned even if they were passed.
No issuance of securities: The UNI token is not a security because it does not meet any legal definition of a security, including not meeting the definition of an “investment contract.” Under U.S. law and established Howey test standards, an investment contract is the pooling of money into a common enterprise with an expectation of profit solely from the efforts of others. There is no contract or promise between Uniswap Labs and the over 300,000 token holders. There is no common enterprise, and the value of the token does not solely depend on the efforts of Uniswap Labs. While the SEC recently took investigative action against the Ethereum Foundation, the U.S. Commodity Futures Trading Commission has been very clear that Bitcoin and Ethereum are not securities. And the Uniswap technology ecosystem is just as decentralized as Bitcoin and Ethereum.
We believe that our products comply with the law and our work aligns with historical trends. While our legal team fights this battle, we will continue to do what we do best: BUILD.
Tags:
Coinbase
DeFi
FTX
SEC
Uniswap
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