DeFi protocol Uniswap received a Wells notice from the Securities and Exchange Commission on 10th April.
Uniswap’s Reaction Towards SEC Wells Notice
It is important to note that the Wells notice often serves as a prerequisite for an investigation into a firm. Chief Legal Officer Marvin Ammori posted the news on his social media account. He claimed that the Wells notice against the firm was disappointing and unexpected from SEC.
It is not decided whether the SEC has the authority over self-custodial and non-intermediated products.
He noticed that in case the SEC claims legal supervision over the DeFi protocol then it is under obligation to provide clarity about the registration process and regulatory guidelines. He further noticed that several SEC commissioners have issued multiple dissents on the matter.
The issuance of the Wells notice against Uniswap is a confirmation that the SEC intends to pursue legal action against the entity. The recipient firm has the chance to offer a written document to establish a legal basis for preventing regulatory scrutiny.
Uniswap operates as an automated token exchange on the Ethereum blockchain that allows investors to swap various tokens without traditional intermediaries such as centralized exchanges.
Securities and Exchange Commission to Investigate Uniswap
Cointelegraph report on the matter revealed that the SEC has been conducting investigation on Uniswap Labs since 2021. The decentralized exchange has delisted various tokens from its platform on account of the ongoing regulatory scrutiny. As part of the defense, Uniswap Labs claimed that it is a software solution that contributes front-end to the application.
This UI framework operates as a separate entity from the Uniswap protocol. The main Uniswap protocol operates as an autonomous code released for public utility. The Uniswap protocol, web-based application, and custodial wallet do not fit the legal definition of a security exchange or brokerage.
Ammori noticed that the DeFi protocol is looking forward to the regulatory guidelines directed at crypto and establishing clear rules for DeFi entities operating in the United States.
He further stated that a sanctioned approach is preferred over arbitrary enforcement and power abuse. SEC has taken legal action against various crypto firms including trading platforms such as Coinbase and Binance.
The SEC has unveiled the latest legal action against crypto-based protocols that could advance EU’s MiCA regulations over DeFi protocols with the inclusion of userinterface. Regulators in the EU are under obligation to prepare a report before 30th December to access the feasibility of specified regulations for DeFi markets.
Uniswap to Face Legal Troubles After SEC Well Notice
A legal analysis of the matter published in Cointelegraph indicates that the odds of Uniswap losing the case are low. This report noticed that thus far there are no allegations on Uniswap for stealing investor’s funds, manipulating markets, or committing fraud.
The underlying code of the DeFi protocol is immutable and Uniswap Labs have retained that it facilitates a portal for users to connect with different trading projects.
The Cointelegraph report noticed that in order for the SEC to establish the case in court, the agency has to prove that the protocol is operating as an unregistered brokerage or exchange. The regulator was unable to lay down a legal basis for the same in the case of the Coinbase wallet.
The report projected that SEC lawyers can work on establishing that operations, liquidity providers, front-end applications, and coders are all part of the same Uniswap operations.
The agency will have to risk nominating software developers as unlicensed brokerages. The same issue prompted Judge Katherine Polk to dismiss the SEC’s lawsuit against Coinbase Wallet.
SEC is likely to claim that the UNI token is an unregistered security and airdrop of UNI was a security distribution. This assertion will test the theory of SEC about airdrops in court. The lawsuit brought by the DeFi Education Fund against the SEC deals with the same issues. SEC has argued that airdrops are offered to sale securities based on the TradeFi model.
