Uniswap Hit With $175,000 CFTC Fine, SEC Probe Still Pending
Uniswap has settled with the CFTC for $175,000. (Tom Williams/CQ-Roll Call, Inc via Getty Images)
- Uniswap has paid $175,000 to settle with the CFTC without admitting or denying charges.
- Two CFTC commissioners have criticized the charges against Uniswap and expressed concern over more regulatory uncertainty as a result of the ruling.
- The SEC is planning to take enforcement action against Uniswap for securities violations.
The US Commodity Futures Trading Commission (CFTC) has charged decentralized exchange (DEX) Uniswap with illegally offering leveraged trading to US retail investors.
However, two commissioners say the CFTC’s case should have never gone ahead.
Uniswap Settles
As per the Sept. 4 press release from the CFTC, Uniswap will pay $175,000 to settle charges with the regulator, who said the charges were light thanks to Uniswap Lab’s “substantial cooperation.”
Notably, Uniswap Labs agreed to settle without admitting or denying the allegations. According to the CFTC, Uniswap facilitated the illegal trade of $21.5 million of leveraged tokens through the Uniswap protocol.
“During the Relevant Period, the digital assets traded on the Protocol through the Interface included a limited number of leveraged tokens, which provided users approximately 2:1 leveraged exposure to digital assets such as ether (ETH) and bitcoin (BTC), both commodities in interstate commerce,”
As Uniswap was not registered as a designated contract market with the CFTC, it was not allowed to offer such products. However, two CFTC commissioners have taken the regulator to task over their heavy-handed approach to regulation.
Dissenting Statements
CFTC commissioners Caroline D. Pham and Summer K. Mersinger have both written dissenting statements following the CFTC decision, criticizing the agency for swinging the enforcement hammer “against another DeFi protocol.”
Mersinger was particularly critical of the CFTC, noting that the case had “all the hallmarks” of what has become known as “regulation through enforcement.”
“A settlement with a de minimis penalty that bears little relationship to the conduct alleged, sweeping statements about the broader industry that are not germane to the case at hand, and legal theories that have not been tested in court,” Mersinger wrote.
Caroline Pham also noted that the administrative record failed to confirm if the leveraged tokens offer leverage.
She says her dissent is based on the fact that the proceeding is “legally unsupported under the CEA and is a violation of the APA,” which both provide frameworks and standards for such investigations.
Pham adds that this settlement order will compound regulatory uncertainty, place small “cash market businesses in jeopardy of violating the law,” and stifle innovation in America.
Meanwhile, Uniswap is also up against the SEC, which issued a Wells notice against the DeFi platform.
SEC Case Pending
On April 10, 2024, Uniswap notified the community that it had received a Wells notice from the SEC. This is basically a warning shot from the regulator to let entities know an investigation and legal proceedings are on the way.
Uniswap has urged the SEC to abandon the inclusion of DeFi markets in its definition of an “exchange”.
They’ve also publicly rebuked the notice, arguing that the regulator’s approach is misguided and legally questionable. Uniswap is confident that should the matter go to court, it would win.
This comes after an aggressive period of enforcement from the SEC, which has had years-long and ongoing battles with the likes of Coinbase, Ripple (XRP), Robinhood, Conensys, and many other major players in the space.
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