Uniswap Challenges SEC’s Cryptocurrency Classification in Bold Legal Battle

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In the bustling world of digital currency trading, New York-based Uniswap Labs, creators of a prominent decentralized trading platform, are boldly refuting impending enforcement action from the U.S. Securities and Exchange Commission (SEC). Their challenge is largely based upon the SEC’s classification of cryptocurrency tokens as securities, a classification Uniswap vehemently disputes.

The SEC recently issued a Wells Notice to Uniswap Labs, a formal signal of intent to instigate legal action against the company, suggesting that it was operating as an unregistered exchange and broker-dealer. In response, the firm submitted a detailed 40-page retort to the SEC, arguing numerous reasons why the anticipated lawsuit should be reconsidered.

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The key to Uniswap’s defense lies in their belief that tokens are nothing more than a file format for holding a certain value and not, as the SEC suggests, securities themselves. Marvin Ammori, the Chief Legal Officer of Uniswap Labs, critically emphasized that the SEC’s attempts to redefine the words “exchange,” “broker,” and “investment contract” to fit into their description of Uniswap’s operation is a failure in understanding the nature of their operations.

In 2021 alone, the SEC has targeted multiple crypto-based companies via Wells notices, lawsuits, and settlements. The primary focus of the commission’s scrutiny has been on Ethereum and the decentralized finance sector, with companies such as Uniswap, ShapeShift, TradeStation, and Consensys facing scrutiny. Reports have even indicated that the Ethereum Foundation itself might be under investigation.

However, Uniswap Labs is diligently highlighting the SEC’s shortcomings in their case, particularly in distinguishing between the functions of tokens. They argue that if the SEC continues to pursue a lawsuit on the grounds of them operating as an unregistered exchange, it could face negative repercussions regarding its governing authority over crypto tokens.

The potential fallout could be global, setting a questionable legal precedent for future rulemaking efforts. Reassuringly, Uniswap Labs stated openly that they are not afraid to head to court if necessary, firmly expressing faith in a positive outcome:

“But we’re prepared to fight. Our lawyers are 2-0 in high-profile SEC cases. Andrew Ceresney, a former head of enforcement at the SEC, represented Ripple in their victory over the SEC. Don Verrilli, a former U.S. solicitor general, having argued more than 50 cases before the U.S. Supreme Court, represented Grayscale in its successful case against the SEC.”

Meanwhile, the SEC Chairman, Gary Gensler, has held a consistent stance that decentralized exchanges are not truly decentralized and should thus remain under the SEC’s regulatory umbrella. Uniswap retorted that its governance token, UNI, does not meet the criteria of the Howey Test, the standard legal framework used to assess investment contracts.

The company further questioned the SEC’s interpretation of LP tokens, which functions as securities for providing liquidity in Uniswap pools. Uniswap insisted that LP tokens function as simple accounting aids, not bona fide investment instruments.

In the whirlwind of this legal joust, Uniswap’s native token UNI has experienced an impressive surge, with gains of almost 20% over the last 24 hours. After recently emerging from a two-month consolidation period, UNI has rebounded in the market to trade at $9.34.