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Uniswap Labs Challenges SEC, Denies Crypto Tokens Are Securities

Uniswap Labs disputes SEC's claim that tokens are securities, prepared to litigate if necessary.

5/21, 14:42 EDT
Bitcoin / U.S. dollar
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Key Takeaway

  • Uniswap Labs disputes SEC's claim that crypto tokens are securities, arguing they are merely file formats for value.
  • The company asserts UNI and LP tokens do not meet the Howey Test criteria for securities, challenging SEC's regulatory authority.
  • Uniswap Labs is prepared to litigate against the SEC’s potential enforcement action, confident in their legal stance.

Uniswap Faces SEC Scrutiny

Uniswap Labs, the creator of the largest decentralized trading platform on Ethereum, is currently embroiled in a potential enforcement action by the US Securities and Exchange Commission (SEC). The New York-based startup has firmly disputed the SEC's allegations that it operates an unregistered exchange and broker dealer. This response follows the SEC’s issuance of a Wells notice to Uniswap Labs last month, indicating the regulator's intent to recommend legal action.

Marvin Ammori, Chief Legal Officer of Uniswap Labs, stated during a press conference, "The SEC’s entire case rests on the false assumption that all tokens are securities. Tokens are, in fact, simply a file format. They are a file format for value and they are not inherently securities." Uniswap Labs argues that the SEC would need to redefine the terms "exchange," "broker," and "investment contract" to encompass their operations.

Legal and Regulatory Implications

Uniswap Labs has made it clear that they are prepared to litigate if necessary. Ammori emphasized, "We will litigate if we have to, and if we litigate, we will win." The company’s 40-page response to the SEC outlines the risks the regulator would face by pursuing this action, including potential limitations on its authority over crypto tokens and the definition of an "exchange."

The SEC, led by Chairman Gary Gensler, has maintained that decentralized exchanges fall under its regulatory purview and that many digital assets are unregistered securities. However, Uniswap Labs contends that their UNI tokens and LP tokens do not meet the criteria of the Howey Test, a legal framework defining investment contracts. They argue that LP tokens are merely "bookkeeping devices" used to track assets provided to smart contracts and are not issued for investment purposes.

Ether ETF Speculation Drives Market Surge

Amidst the regulatory challenges faced by Uniswap, the broader crypto market experienced a significant rally on Monday, driven by speculation that the SEC may be easing its stance on approving exchange-traded funds (ETFs) that invest directly in Ether (ETH). Ether surged by 12% to approximately $3,448, while Bitcoin (BTC) also saw gains, climbing 5% to $69,527.

This market movement was influenced by comments from Bloomberg Intelligence ETF analyst Eric Balchunas and his colleague James Seyffart, who increased the estimated probability of a spot-Ether ETF approval to 75% from 25%. Chris Newhouse, a decentralized-finance analyst at Cumberland Labs, noted, "Massive spikes in volume and demand for both spot and leveraged positions are apparent in the markets and the outperformance in ETH compared to BTC points to the potential ETH ETF catalyst as a primary driver."

Regulatory Hurdles and Market Reactions

Despite the optimism, the path to ETF approval remains fraught with uncertainty. The SEC has requested exchanges to update their 19b-4 filings on an accelerated basis, suggesting a potential move towards approval ahead of a key deadline this Thursday. However, the ETFs will also need their S-1 applications approved before trading can commence, a process that could take an indefinite amount of time.

Some fund companies remain skeptical, expecting a rejection due to less robust private dialogues with the SEC compared to those before the approval of spot-Bitcoin ETFs in January. Ravi Doshi, head of markets at FalconX, shared this cautious outlook, stating, "FalconX’s derivatives desk has seen the majority of our counterparties fade the move with the expectation that the SEC will move slower than the markets are anticipating."

Street Views

  • Marvin Ammori, Uniswap Labs (Bearish on SEC's stance):

    "The SEC’s entire case rests on the false assumption that all tokens are securities. Tokens are, in fact, simply a file format. They are a file format for value and they are not inherently securities."

  • Marvin Ammori, Uniswap Labs (Bullish on Uniswap Labs' legal standing):

    "We will litigate if we have to. And if we litigate, we will win."