Uniswap Labs Fires Back Against SEC’s 'Weak and Wrong' Legal Threats

Uniswap Labs, creator of the popular Ethereum decentralized exchange Uniswap, said Tuesday that it had filed a response to the Securities and Exchange Commission (SEC) after being put on notice of a potential enforcement action from the U.S. regulator.

“Their legal arguments are weak and have been refuted by courts,” the company said of the SEC in a blog post. “The SEC’s aggressive theories are an effort to expand its jurisdiction beyond exchanges to communications technology—and beyond securities to all markets.”

Urging the SEC not to pursue an enforcement action against it, Uniswap Labs said the Commission’s actions could undermine the innovative potential of decentralized finance (DeFi), drive more U.S.-based crypto companies offshore, and ultimately hurt consumers who use the protocol.

Sending a so-called Wells Notice to Uniswap Labs last month, the SEC took issue with Uniswap’s Ethereum-based UNI token, according to a response published by Uniswap Labs. The agency alleged that the exchange’s governance token, allowing holders to play a part in determining the protocol’s direction, resembled a security.

The regulator also accused Uniswap Labs of acting as an unregistered broker, the firm said—a similar accusation levied against centralized exchanges last year in lawsuits against Coinbase and Binance. Denying the allegation, Uniswap argued that it “does not stand up to scrutiny.”

Uniswap cited a decision from U.S. District Judge Kathleen Failla in March. Letting the SEC’s case against Coinbase proceed mostly, Failla tossed out one claim then that the company’s Coinbase Wallet product acted as a broker, finding the SEC’s argument “insufficient.”

Compared to centralized exchanges, Uniswap said its services are distinct. Because users maintain custody of their funds when connecting to the DeFi protocol, and interact via automated smart contracts, Uniswap said it plays no role as an intermediary effecting or settling transactions.

“The Interface does not receive or store users’ orders or hold their funds,” the reply stated. “At all times, a user of the interface controls the key aspects of the transaction, and a user’s crypto assets remain self-custodied in their own wallet until that user executes the swap.”

Stretching across 17 different blockchains, Uniswap had collected $3.7 million in fees over the past day on nearly $3.5 billion in trading volume, according to DefiLlama data. Behind the DeFi powerhouse, Uniswap Labs divulged it received a Wells Notice in early April.

In its response, Uniswap also took issue with the SEC’s claims that liquidity pool (LP) tokens are securities. Used to track assets that are provided by users to smart contracts on the exchange, which allow for trading through liquidity pools, Uniswap said LP tokens “are issued not for investment purposes, but instead as accounting tools, and they are therefore not securities.”

The permissionless nature of decentralized exchanges, where anyone can list any token, has come up in court before for Uniswap Labs. A class action lawsuit alleging securities laws violations was tossed out by Judge Failla last year. 

Trying to hold Uniswap Labs and its investors accountable for so-called scam tokens that purportedly burned traders, Failla dismissed the lawsuit because Uniswap wasn’t responsible for the smart contracts that allowed specific assets to trade. She compared it to trying to hold Venmo or Zelle accountable for a drug deal taking place on their respective payments platforms.

“Congress plainly did not intend the Commission to require other general-purpose protocols such as [...] HTTP, let alone Gmail, Twitter, eBay, or Indiegogo, to register as exchanges simply because a security may occasionally be sold via their technologies,” Uniswap’s response argued. “Reading ‘exchange’ to cover the protocol is equally irreconcilable.”

Edited by Andrew Hayward