Uniswap Responds to SEC Wells Notice, Affirming Commitment to Defend DeFi
Uniswap Labs, the developer responsible for the decentralized exchange Uniswap, has responded to a Wells notice from the United States Securities and Exchange Commission (SEC), which indicates a potential enforcement action against the company. In a blog post published on May 21, Uniswap criticized the SEC’s legal basis for the notice, deeming it “weak,” and expressed its readiness to challenge the matter in court if necessary.
The company highlighted the success of its legal team in defending other firms, including Grayscale and Ripple, against the financial regulator. Uniswap’s Chief Legal Officer, Marvin Ammori, argued that the SEC’s case was fundamentally flawed because it assumes that all tokens fall under its jurisdiction as securities.
Uniswap stated that the SEC should not allocate taxpayer resources to pursue a case against the exchange. However, the company is prepared to vigorously contest the charges.
This response comes as the U.S. House of Representatives is set to vote on the Financial Innovation and Technology for the 21st Century Act, a bill that could redefine the regulatory responsibilities of the SEC and the Commodity Futures Trading Commission (CFTC) in relation to cryptocurrency. Uniswap suggested that if this legislation is enacted, the SEC’s case may become irrelevant, with the CFTC gaining enforcement authority in certain areas.
In the past, some Wells notices issued to cryptocurrency firms by the SEC have escalated into full-scale lawsuits, such as the one against Coinbase in March 2023. The SEC has also indicated its intention to pursue enforcement actions against trading platform Robinhood in May.
Ammori further asserted that the SEC would likely lose any case against Uniswap, potentially undermining its future authority over decentralized finance (DeFi), cryptocurrencies, and emerging technologies. He compared the situation to early internet laws that hindered innovation.
There is speculation that the SEC’s enforcement action may be linked to discussions about categorizing Ether as a security. Uniswap facilitates automated token exchanges on the Ethereum blockchain. It is worth noting that the SEC is expected to make decisions on applications for spot Ether exchange-traded funds by May 23.
Confirmation and Criticism
Ammori confirmed the SEC’s issuance of the Wells notice to Uniswap in April on the social media platform X (formerly Twitter) on April 10. He expressed disappointment but not surprise, criticizing the SEC for its lack of clarity and guidance regarding the regulation of Uniswap’s self-custodial, non-intermediated products. Ammori noted that the SEC has not provided a framework for how such products should be registered.
A Wells notice serves as a formal notification from the SEC, informing a company or individual that the regulator’s staff intends to recommend enforcement action. This notice allows the recipient to respond with a written explanation or argument, known as a Wells submission, to contest the proposed action.
Uniswap’s Operational Model
Uniswap operates on the Ethereum blockchain and enables users to exchange various cryptocurrencies without the need for traditional intermediaries like centralized exchanges. The SEC has been investigating Uniswap Labs since 2021, and the decentralized exchange has previously delisted several tokens due to regulatory pressure.
In its defense, Uniswap Labs has maintained that it only develops the front-end portal for the app, which is separate from the autonomous Uniswap protocol itself, released as public code.
SEC’s Previous Actions and EU’s Regulatory Progress
The SEC has previously issued similar notices to crypto exchanges Coinbase and Binance, warning them about potential legal actions. While the U.S. SEC continues to take legal actions against crypto protocols, the European Union is making progress with its Markets in Crypto-Assets (MiCA) regulation, which will also cover decentralized finance (DeFi) protocols and their front-ends.
The EU regulator is mandated to prepare a report by December 30, 2024, to assess the feasibility of specific regulations for the decentralized finance market. This report will investigate how decentralized systems, especially those without a clear issuer or service provider, should be regulated within the region.
