Uniswap Responds To Wells Notice, Urges SEC To Drop Pending Enforcement Action

Uniswap Labs has responded to the Wells Notice issued by the United States Securities and Exchange Commission, arguing that its aggressive theories stretch the commission’s reach beyond its jurisdiction. 

The Securities and Exchange Commission (SEC) alleged that the Uniswap DEX acted as Uniswap Labs’ unregistered securities exchange and broker-dealer. 

Uniswap Responds To Wells Notice 

Uniswap had received a Wells Notice from the SEC notifying it that the regulator believed it had broken the law. The SEC accused Uniswap of being an unregistered securities exchange and the interface and wallet of being unregistered securities brokers. However, Uniswap Labs, in its response, pushed back against the SEC’s accusations and argued that Uniswap, as a protocol, does not meet the definition of an exchange and, thus, is not subject to regulation by the SEC. Uniswap Labs stated that while it invented the protocol, it had become a “passive” technology used by people to trade cryptocurrencies. 

Uniswap Labs argued that the SEC’s “aggressive theories” were an attempt to stretch the regulator’s reach beyond its jurisdiction, adding that it believed the House would pass a bill giving the Commodity Futures Trading Commission (CFTC) authority over digital asset trading. Uniswap also urged the SEC to embrace open-source technology to help improve the outdated commercial and financial systems instead of trying to litigate it out of existence. 

“We’re confident that our work is on the right side of history. The SEC should not devote its taxpayer-funded resources to bringing a case against us. The SEC is targeting assets and people in nations well beyond its authority. The protocol is used overwhelmingly to trade obvious commodities – ETH, WBTC, and stablecoins alone are about 65% of the trading. An estimated 75% of usage is outside the US. The math on these two means over 90% of the volume is obviously beyond SEC jurisdiction. So the SEC would be bringing a case to target, at best, a very small percentage of volume on a general-purpose technology.”

Uniswap also argued that bringing a case against Uniswap would deter American crypto investors and push them toward foreign trading protocols. It also argued that such action would prevent future innovators from attempting to foster new ideas and hinder competition and innovation in financial and commercial markets. 

SEC Has No Jurisdiction Over Uniswap 

According to Uniswap’s Chief Legal Officer Martin Ammori, The SEC would have to redefine what an exchange is to have jurisdiction over Uniswap. According to Ammori, according to the current definition, Uniswap would have to be specifically designed for securities trading. This is why the SEC is attempting to redefine half a dozen words in their own regulations to corner Uniswap. 

“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.”

SEC’s Argument Weak And Wrong 

SEC Chair Gary Gensler has stated that decentralized exchanges do not operate in a decentralized manner, putting them within the regulator’s jurisdiction. Gensler also stressed that the SEC considers several digital assets as unregistered securities, subjecting them to SEC regulations. Uniswap argued that the UNI token should not be considered as unregistered securities because the token distributions did not fulfill the criteria set by the Howey Test. It also challenged the SEC’s assertion that LP tokens should be considered as securities. 

“The LP Token is used as a bookkeeping device to keep track of which assets the user provided to the smart contract and any fees earned on the user’s liquidity […] In other words, the LP Tokens are issued not for investment purposes, but instead as accounting tools, and they are, therefore, not securities.”

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.