The United States’ Securities Exchange Commission (SEC) has struck against crypto once again. Their latest Wells notice, a warning indicating the regulator’s intent to pursue legal enforcement, targeted one of crypto’s most coveted decentralised finance (DeFi) applications, Uniswap. The decentralised exchange (DEX) just passed $2 trillion in lifetime trading volume. But Uniswap is just getting started and will not go down without a fight.
Details are still not exactly clear what the SEC is trying to enforce. However, the Wells notice received suggests the DEX is acting as an unregistered securities exchange and securities broker. This is an interesting attack vector by the SEC. Especially with the latest ruling in Coinbase’s case that DeFi wallets are not brokers. This point still stands even if the tokens sold on it are securities. Due to Uniswap’s decentralised nature, even its governance model cannot actually stop transactions or token listings on the exchange. Uniswap Labs, the recipient of the Wells notice, only supports the front end for accessing it. The entities actually responsible for its operation are Ethereum, and other chains’, validators and liquidity providers.
Uniswap founder, Hayden Adams, stated that the SEC has lacked clear guidance for actors on how to comply. Regardless, Adams believes Uniswap’s product offering is compliant and its “work is on the right side of history”. The Wells notice does provide the recipient a chance to argue against the lawsuit before it proceeds. However, Adams believes this case will likely go ahead and take several years to resolve. When the time does come, the case will likely be the most important precedent setting case in all of DeFi’s history and confirm if DEXs are brokers or exchanges in the eyes of the law.
However, the SEC may not experience a positive outcome if they continue with their current approach to enforcement. Just last month, a Federal judge stated the SEC had committed a “gross abuse of power” when regulating crypto company DEBT box. The current US administration’s opinions on crypto have also been less than friendly. But, this year is also a US election year, so depending on the outcome there may be a differing stance on crypto and its regulation coming our way coming from the Whitehouse. More positively, on Tuesday, there was the Bitcoin Policy Summit where US policy makers met to discuss Bitcoin regulation with industry leaders. Maybe the battle for US government acceptance for crypto is not lost quite yet.