Home / News / Crypto / Ethereum (ETH) / ETH Declared Commodity as Court Exonerates Uniswap, Rejecting Securities Violation Claims
Ethereum (ETH)
4 min read

ETH Declared Commodity as Court Exonerates Uniswap, Rejecting Securities Violation Claims

Published
Teuta Franjkovic
Published
Key Takeaways
  • A NY judge dismissed a planned class action lawsuit against Uniswap.
  • Plaintiffs say it harmed investors by allowing the trading of fraudulent tokens.
  • Disproving SEC, the judge labeled Ether (ETH) as a commodity.
  • The same judge will hear the case involving Coinbase and the SEC.

A New York judge dismissed a planned class action against the top decentralized cryptocurrency exchange Uniswap on Wednesday, August 30, 2023, and classified popular cryptocurrencies Ether (ETH) and Bitcoin (BTC) as “commodities”.

Breach of U.S. Securities Laws

The DeFi platform allegedly breached U.S. securities laws by failing to register as an exchange or a broker-dealer, offering and soliciting securities on an unregistered exchange. It also failed to register as a broker-dealer, according to a complaint brought by a group of investors in April 2022 against Uniswap and its founder, Hayden Adams.

In the lawsuit , investors who fell victim to scam tokens created and traded on the protocol are seeking to hold Uniswap accountable. Tokens like EthereumMax (EMAX), Bezoge (BEZOGE), and Alphawolf Finance (AWF) are among those named in the lawsuit..

The recent decision to dismiss the lawsuit before trial identified the alleged ‘scam token’ issuers as the defendants, not Uniswap. Judge Katherine Polk Failla of the Southern District of New York recognized ETH as a commodity and declined to apply federal securities laws to the claims against Uniswap.

This was in contrast to Securities and Exchange Commission (SEC) Chief Gary Gensler who has so far refrained from referring to the cryptocurrency as a security.

The court’s decision to dismiss the class action may have an impact on future lawsuits against decentralized protocols and potentially even lawsuits on breaking U.S. securities laws.

Additionally, Judge Polk Failla is in charge of the SEC’s case against Coinbase.

Case Thrown Out

According to Judge Polk Failla’s ruling published after the order on Wednesday, August 30, 2023, the decentralized architecture of the Uniswap Protocol made it impossible to identify scam token issuers, resulting in the absence of an “identifiable defendant” in the case

“Undaunted, they now sue the Uniswap Defendants and the VC Defendants, hoping that this Court might overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least as to the specific claims alleged in this suit,” the Judge stated .

“It defies logic that a drafter of computer code underlying a particular software platform could be liable under Section 29(b) for a third-party’s misuse of that platform.”

Plaintiffs claimed that Uniswap facilitated the trades in question by “providing a marketplace and facilities for bringing together buyers and sellers of securities” for a transaction fee in the absence of “actual issuers” of the “scam tokens,” “hoping that this Court might overlook the fact that the current state of cryptocurrency and especially ETH regulation, leaves them without recourse, at least as to the specific claims alleged in this suit.”

The plaintiffs’ stated that Uniswap was similar to a self-driving car maker and that the protocol’s developers harmed people by designing a system allowing fraudulent tokens, but the court rejected this.

The Judge asserted: “The Court declines to stretch the federal securities laws to cover the conduct alleged, and concludes that Plaintiffs’ concerns are better addressed to Congress than to this Court.”

In reality, the case is more akin to holding a platform like Venmo or Zelle accountable for facilitating a drug trade via financial transactions, rather than a manufacturing flaw, as the opinion noted.

The court concluded that the investors’ grievances are “more suitable for Congress than this Court,” citing the absence of relevant regulation.

Wrapped BTC Viewed As a Commodity?

ConsenSys regulatory chief, Bill Hughes, on social media that The SDNY (Failla, J.) made it clear in its ruling that Ethereum is classified as a commodity, not a security, in the Risely v. Uniswap case.

He elaborated on how, albeit tentatively, this notion suggests that wrapped BTC might be viewed as a commodity. He is quite certain that the adage “Ethereum is a commodity” is true, and he is so convinced of this that he is willing to stake his own home on it. It doesn’t appear like the judge inserted this adage by accident.

Things have improved, Hughes continued, emphasizing that liquidity providers retain ownership of their tokens when contributing to a pool. He stressed the importance of this concept beyond AMM-related matters, as it influences how courts perceive liquid staking procedures and the taxation of various smart contract transactions.

Was this Article helpful? Yes No
Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.
See more
loading
loading