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Uniswap Joins Robinhood, Consensys, Kraken in Fighting Wells Notice, Says SEC Arguments “Weak and Wrong”, Who Else is Standing Up to Regulator?

Last Updated May 22, 2024 8:38 AM
Teuta Franjkovic
Last Updated May 22, 2024 8:38 AM

Key Takeaways

  • Uniswap Labs rejects SEC’s claims and regulatory approach to DeFi calling arguments ‘weak’ and ‘wrong’.
  • The company argues that its protocol and tokens are not securities.
  • Uniswap Labs joins Robinhood, Kraken and Consensys in dispute against the SEC and is confident in its legal defense.

Uniswap is fighting back against the United States Securities and Exchange Commission (SEC) after the regulator issued the decentralized exchange (DEX) with a notice of intented prosecution last month.

Uniswap Labs has issued a rebuttal to the SEC’s April 10 Wells notice , arguing that the agency’s approach to regulating decentralized finance (DeFi) is both misguided and legally questionable. The DEX now joins Robinhood, Kraken, Coinbase, and Consensys in a legal fight against the SEC.

Uniswap Labs Challenges SEC Wells Notice, Ready for Legal Fight.

In a blog post  dated May 20, the company expressed confidence in its legal standing, saying it would win should the matter go to court.

Uniswap Labs said  that its operations were lawful. This standoff is part of a larger ongoing debate about the future of financial technology and the regulatory landscape surrounding it.

The company said :

“We’re confident that our work is on the right side of history. The SEC should not devote its taxpayer-funded resources to bringing a case against us.”

Challenging SEC Overreach, Defending DEX as Investor-Friendly Innovation.

Uniswap Labs criticized the SEC’s attempts to extend its regulatory reach over communications technology and digital markets. It argued that the agency’s legal foundations were “weak”, adding :

“The SEC’s aggressive theories are an effort to expand its jurisdiction beyond exchanges to communications technology – and beyond securities to all markets. Their legal arguments are weak and have been refuted by courts.”

Uniswap went on to say:

“We believe the SEC should embrace open-source technology that improves on outdated commercial and financial systems instead of attempting to litigate it out of existence.”

Uniswap Labs also say its Uniswap Protocol is in line with the SEC’s core mission of protecting investors and ensuring the markets operate fairly, orderly, and efficiently. It says the Uniswap decentralized exchange (DEX) helps users carry out transactions directly without the need for a centralized middleman.

The protocol, which operates autonomously, has reportedly handled $2 trillion in trading volume securely without incidents of hacking.

Challenging SEC Securities Claims

Uniswap Labs denied  the Wells notice’s claims that the protocol was as an unregistered securities exchange and that the UNI token was an investment contract. The company said :

“A token is a file format, like a PDF. The Protocol is a general purpose computer program that anyone can use and integrate, like TCP/IP.”

The company also said that while the SEC suggests that some securities deals may take place on the platform, the main use of the protocol is for non-securities transactions involving assets like Ethereum, wrapped Bitcoin, stablecoins, and memecoins.

Uniswap Labs also said UNI token was distributed via an airdrop without any promise of profits derived from the DEX’s performance. This, it argued, meant it did not fulfill the investment contract criteria outlined in the Howey Test.

Uniswap Labs Confident in Legal Defense Against SEC

Uniswap Labs’ Chief Legal Officer, Marvin Ammori, is confident  in the firm’s legal position,. Ammori believes that the case against the SEC is robust. This, he claims, is because the agency appears to be attempting to reshape legal definitions, such as what constitutes an exchange.

He pointed out  that similar arguments made by the SEC against other firms, like Coinbase, have been previously dismissed by courts, which ruled that self-custodial wallets are not brokers. Uniswap Labs has hired attorneys Andrew Ceresney and Don Verrilli, who have significant previous victories in high-profile cases involving Ripple and Grayscale against the SEC.

SEC Ramps Up Enforcement Actions Targeting Robinhood and Consensys

This action is part of a broader trend. The SEC has also also issued Wells notices to other major players in the cryptocurrency industry, including Consensys and Robinhood.

Earlier this month, Robinhood Markets announced that it received an enforcement action notice  from the SEC on May 4, concerning the crypto tokens traded on its platform. This notification, known as a “Wells notice,” indicates the SEC’s intention to bring enforcement action, though it does not necessarily imply wrongdoing by the company.

Robinhood Crypto lets customers deposit and withdraw cryptocurrencies to and from its custodial platform. It also moves customer orders to liquidity providers who offer the lowest prices. The company has been trying to register with the SEC for nearly two years. Notably, last year, Robinhood removed several digital tokens including Solana, Cardano, and Polygon from its trading platform.

The SEC has not yet launched lawsuits against these firms, with Consensys responding with a preemptive lawsuit of their own.

Consensys Fights Back

A month prior, Consensys initiated legal action against the United States Securities and Exchange Commission (SEC), disputing the regulatory classification of Ethereum as a security. This lawsuit, filed in a Texas court, came after the SEC issued a Wells Notice to Consensys. In the notice, the SEC said that Consensys’ MetaMask service was operating as an “unlicensed broker-dealer.”

This case  not only challenges the SEC’s stance but also seeks to protect Ethereum from being stifled by regulations. A win for Consensys could set a judicial precedent that might secure a more stable legal environment for Ethereum. However, neither Ethereum itself, nor its co-founder Vitalik Buterin, are directly involved in the case. Consensys says labeling Ethereum as a security could stop technological innovation and have negative repercussions on the American economy.

The SEC also says Consensys’s MetaMask Swaps and Staking services may be violating federal securities laws. The regulatory body’s position is based on the belief that Consensys operates these services without the proper broker-dealer registration.

Kraken Challenges SEC’s Legal Terminology and Accusations in Crypto Exchange Dispute

The dispute between Kraken and the SEC has also intensified following Kraken’s recent legal filings  challenging the SEC’s terminology. Kraken’s response  criticizes the SEC for what it describes as a lack of precision in its language. It takes issue with the terms “investment concept” and “ecosystem”. According to Kraken, the correct terms should be “investment contract” and “enterprise”.

In its defense, Kraken asserts that the SEC’s accusations, which claim the crypto exchange facilitated the trading of unregistered securities, are based on a flawed understanding of fundamental legal concepts.

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