Uniswap Labs Urges SEC to Drop Enforcement Action, Cites 65% Non-Securities Volume

Uniswap Labs challenges SEC's jurisdiction, arguing 65% of its volume involves non-securities like Ethereum and Bitcoin.

By Athena Xu

5/21, 14:02 EDT
Bitcoin / U.S. dollar

Key Takeaway

  • Uniswap Labs is challenging the SEC's Wells notice, arguing that its protocol and products do not meet the definition of an exchange or securities broker.
  • Chief Legal Officer Martin Ammori asserts that 65% of Uniswap's trading volume involves non-securities like Bitcoin, Ethereum, and stablecoins.
  • The SEC's potential enforcement action against Uniswap could have significant implications for DeFi, particularly regarding LP tokens and their classification under securities law.

Uniswap's Legal Battle with the SEC

Uniswap Labs has taken a decisive step to counter the Securities and Exchange Commission's (SEC) impending lawsuit, arguing that the regulatory body’s case against the decentralized exchange is fundamentally flawed. The SEC issued a Wells notice to Uniswap in April, accusing the protocol of operating as an unregistered securities exchange and its interface and wallet as unregistered securities brokers. In response, Uniswap Labs contends that the protocol does not meet the SEC's definition of an exchange and should not be subject to its regulations.

Martin Ammori, Uniswap Labs’ Chief Legal Officer, emphasized that the SEC would need to redefine what constitutes an exchange to claim jurisdiction over Uniswap. "It is general purpose, and the majority of its volume are obvious non-securities like Ethereum, Bitcoin, and stablecoins," Ammori stated, noting that these assets account for 65% of the protocol’s trading volume. He further argued that the SEC's current definitions do not encompass Uniswap's operations, which are based on autonomous software rather than a centralized entity.

SEC's Expanding Scrutiny on Ethereum

The SEC's focus on Uniswap is part of a broader crackdown on the Ethereum ecosystem and decentralized finance (DeFi) platforms. The regulatory body has been increasingly targeting major players in the space, including ShapeShift, TradeStation, and Consensys. This heightened scrutiny comes as the SEC grapples with the classification of Ethereum's native token, ether, and its implications for the broader crypto market.

Joseph Lubin, co-founder of Ethereum and CEO of Consensys, criticized the SEC's approach, suggesting that the agency is attempting to stifle innovation in the U.S. "This action is about the almost certainty that we hold that the SEC is trying to slow or kill ethereum, decentralization, disintermediation, and disintermediated technology in the U.S.," Lubin said. He warned that such regulatory actions could influence other countries to adopt similarly restrictive measures.

Implications for the Crypto Market

The potential reclassification of ether as a security could have far-reaching consequences for the crypto industry. Exchanges, both centralized and decentralized, might be forced to register with the SEC or delist ether, significantly disrupting the market. Christopher Gerold, a digital assets attorney, noted that if the SEC classifies ether as a security, "pretty much everyone in this business that is using or providing services on the ethereum blockchain, they’re going to be on notice that they might need to be registered."

The SEC's actions have already prompted some crypto firms to consider relocating outside the U.S. Christina Rea, former Chief Compliance Officer at Binance, highlighted the regulatory uncertainty, stating, "We’ve got companies that are wasting resources trying to figure out, ‘Am I a broker dealer? Are these assets securities?’" This sentiment is echoed by multiple industry executives who argue that the SEC's broad approach to classifying securities is outdated and stifles innovation.

Management Quotes

  • Martin Ammori, Chief Legal Officer of Uniswap Labs:

    "It is general purpose, and the majority of its volume are obvious non-securities like Ethereum, Bitcoin and stablecoins."
    "That’s why, as we speak, there’s a pending rulemaking where the SEC is trying to redefine about half a dozen words in their own regulations to try to capture us. That’s not going to work. It goes beyond their authority given by Congress."
    "We will litigate if we have to, and if we litigate we will win. But we are hoping that the SEC sees that their current strategy is not protecting anyone and not benefiting Americans."