SEC’s Iron Fist Reaches DeFi Leader Uniswap! Founder: Ready to Fight
The U.S. Securities and Exchange Commission (SEC) is tightening its grip on cryptocurrency regulation. After a round of penalties and lawsuits against major centralized exchanges and cryptocurrency companies, the SEC is now extending its reach into the decentralized finance (DeFi) space.
In the early hours of April 10th (Taiwan time), the SEC officially issued a Wells Notice to Uniswap, the leading decentralized exchange. Following the announcement, the price of Uniswap’s native token, UNI, plummeted 9% within an hour. As of the time of writing, the daily drop has exceeded 16%, with the price falling to $9.34, the lowest point since late February.
Wells Notice:
When law enforcement officials gather sufficient evidence to believe that the subject of an investigation may have violated securities laws, they usually notify the subject through a Wells Notice. The notice informs the subject of the evidence currently held by law enforcement and provides an opportunity for the subject to present their defense and arguments to persuade law enforcement not to pursue enforcement action.
Although the Wells Notice typically provides an opportunity for the subject to defend themselves, based on the SEC’s past actions, sending the notice is often just a formal procedure, and the case usually ends up in court.
SEC’s Allegations: Uniswap is an “Unregistered Securities Exchange” and “Unregistered Broker-Dealer”
After the SEC’s announcement, Mary-Catherine Lader, the COO of Uniswap, and Marvin Ammori, the General Counsel, confirmed in a press conference that they had indeed received the Wells Notice. The notice primarily accuses Uniswap of being an “unregistered broker-dealer” and an “unregistered securities exchange.” Whether Uniswap’s native token, UNI, is considered a potential security in the notice has yet to be clarified.
Hayden Adams, the founder of Uniswap, confirmed the news on his personal social media and stated, “I’m not surprised, just frustrated, disappointed, and ready to fight.”
“I believe the product we provide is legal, and the work we do is on the right side of history. But we’ve also seen that the SEC has consistently refused to provide clear and comprehensive regulatory standards, preferring to use aggressive enforcement actions against participants like Uniswap and Coinbase who have had a good long-term performance in the industry, while overlooking the actions of participants like FTX.”
Is Uniswap in a favorable position? General Counsel: SEC has no jurisdiction over Uniswap’s products
Uniswap is the leading decentralized exchange (DEX) built on Ethereum and has just announced on its official website that the platform has facilitated $2 trillion in transactions since its inception.
Unlike traditional brokers or cryptocurrency exchanges, DeFi platforms operate without a centralized organization. All transactions rely on pre-set rules and collateral requirements in smart contracts, which are automatically executed by code.
️ Further reading:
A round of layoffs gave birth to Uniswap! How did a 31-year-old founder without programming skills build the largest DeFi kingdom?
In April of last year, six users who lost funds by purchasing fraudulent tokens on Uniswap sued the platform, accusing Uniswap and its investors of violating securities laws and acting as an unregistered broker-dealer and exchange, providing unregistered securities, and allowing token issuers to deceive users.
Uniswap is the leading decentralized exchange (DEX) built on Ethereum and has just announced on its official website that the platform has facilitated $2 trillion in transactions since its inception.
In August of last year, the judge presiding over the case ruled that Uniswap’s core smart contracts were not illegal and shared the same opinion as Uniswap’s founder, Hayden, who believed that technology is neutral and cannot restrict how users use it. The judge also refused to expand the scope of the federal securities laws to cover the actions alleged by the plaintiffs, stating that the issue of whether cryptocurrencies are securities should be resolved by Congress.
Marvin Ammori, the General Counsel of Uniswap, believes that Uniswap’s protocol, web app, and wallet do not meet the legal definitions of a securities exchange or broker-dealer. A few weeks ago, in the case between the SEC and Coinbase, the judge also ruled that Coinbase’s wallet services do not fall under the category of broker-dealer services, so the SEC does not have jurisdiction over Uniswap’s products.
He also pointed out that the jurisdiction of the Securities and Exchange Commission is limited to “securities,” and most cryptocurrencies are not considered securities (or not yet considered), so the SEC’s actions are overreaching. This was also ruled by a judge in the SEC vs. Ripple case, who believed that the SEC’s enforcement actions were not based on “belief in the law.”
However, given the SEC’s strong support from the White House, the final judgment on how the case will be decided remains uncertain.
Is DeFi under attack? Coinbase Founder: Use Voting to Change the System
SEC and its chairman, Gary Gensler, have become the biggest antagonists in the cryptocurrency industry by enforcing the law instead of regulating it.
The cryptocurrency industry accuses the SEC of failing to consider the unique technical background and mechanisms of blockchain. However, Gensler countered that the existing securities laws are clear, and the cryptocurrency industry wants special treatment without complying with these laws. Gensler’s stance has gained support from powerful allies, including Senator Elizabeth Warren of Massachusetts and the White House.
Ryan Selkis, the outspoken founder of blockchain research firm Messari, angrily stated, “This is the most corrupt government I have ever witnessed (and I lived through the Iraq War, which was already a very corrupt period of governance).”
Brian Armstrong, the founder of Coinbase, invited everyone to use their votes to choose cryptocurrency-friendly senators in the November election and reposted a post from the cryptocurrency community “Stand with Crypto” that said, “DeFi must fight back and change the system with voting.”
Although the cryptocurrency industry has been striving to promote industry-specific legislation in Congress under the existing framework, all discussions are at a standstill due to the upcoming U.S. presidential election. It seems that before the dust settles on the presidential election, the SEC can still take enforcement action against the cryptocurrency industry nearly 80 years later using the definition of securities established by the U.S. Supreme Court in 1946. This “regulation vs. cryptocurrency industry” drama will continue to unfold.
Hayden Adams, the founder of Uniswap, expressed frustration with the SEC’s actions and stated that they are using new technology to improve people’s lives and do not need to hide. Therefore, Uniswap will stay in the United States and continue to maintain its protocol and product operations in its New York office.
“I’m frustrated because it seems like the SEC is more concerned with protecting an opaque enforcement system than protecting consumers. We will have to fight against U.S. government agencies to protect our company and this industry.
This fight will last for years and may even need to persist to the Supreme Court. It is crucial for financial technology and our (cryptocurrency) industry’s future. If we stand united, we can win.
I believe it is worth fighting for freedom, and I believe it is worth fighting for DeFi.”
