Uniswap Labs, the creator of one of the largest decentralized trading platforms, is challenging a potential enforcement action from the U.S. Securities and Exchange Commission (SEC), arguing that crypto tokens should not be classified as securities.
The New York-based company recently refuted claims that it operated as an unregistered exchange and broker-dealer. This response follows the issuance of a Wells notice to Uniswap Labs, indicating that it plans to recommend legal action against the company.
Uniswap Labs disputes SEC’s claims
In a Archive of 40 pages filed with the SEC, Uniswap Labs outlined numerous reasons why the agency’s pursuit of legal action should be reconsidered. The SEC’s claims are primarily based on the assumption that all tokens are securities, a premise that Uniswap Labs disputes.
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Marvin Ammori, Chief Legal Officer of Uniswap Labs, emphasized that tokens are merely a file format for value and not inherently securities. He criticized the SEC’s attempt to redefine the terms “exchange,” “broker” and “investment contract” to include Uniswap’s business.
This year, the SEC has taken action against numerous crypto companies through Wells notices, lawsuits, or settlements.
That of the committee strict supervision has increasingly focused on Ethereum and decentralized finance players, including Uniswap, ShapeShift, TradeStation and Consensys. Additionally, reports suggest that the Ethereum Foundation is under investigation.
Distinction between tokens and securities
Uniswap labs believes that the SEC’s case against them is flawed. No distinction is made between tokens as securities and tokens as securities.
If the SEC moves forward with a lawsuit accusing Uniswap Labs of operating as an unregistered exchange, it risks facing adverse consequences regarding its authority over crypto tokens.
Uniswap Labs warned that such lawsuits could set a precedent and undermine the SEC’s ongoing regulatory efforts. The company expressed its willingness to litigate if necessary and expressed confidence in a favorable outcome, stating:
But we are ready to fight. Our attorneys are 2-0 in high-profile SEC cases. Andrew Ceresney, former head of enforcement at the SEC, represented Ripple in their victory over the SEC. Don Verrilli, a former U.S. Solicitor General, has argued more than fifty cases before the U.S. Supreme Court and represented Grayscale in his successful case against the SEC.
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SEC Chairman Gary Gensler has consistently maintained that decentralized exchanges are not truly decentralized and should fall under the purview of the regulator.
Gensler did that too argued that many digital assets qualify as unregistered securities subject to SEC regulations. Uniswap Labs argued in its response that its governance token, UNI, does not meet the requirements of the Howey Test, a legal framework used to evaluate investment contracts.
The company also challenged the SEC’s classification of LP tokens, which are used as liquidity-providing securities in Uniswap pools. Uniswap Labs claimed that LP tokens are accounting tools and not investment instruments.
Uniswap’s native token UNI has seen significant profits of almost 20% in the last 24 hours alone, as the market recovered from a two-month consolidation period to trade at $9.34.
Featured image from Shutterstock, chart from TradingView.com