The Securities and Exchange Commission (SEC) has done it: it has informed Uniswap Labs, the team behind the decentralized exchange Uniswap, that it intends to sue it. This could mark the most important court case for the future of finance.

Rarely has the financial market authority exposed itself so openly and rarely has the contradiction between rule and mandate been shown so openly.

Imagine you are a financial market regulator, such as the US SEC, and your job is to protect securities trading from fraud and manipulation. Then imagine if there was a stock exchange that operates completely transparently, that verifiably discloses every single trade and every action of everyone involved, right down to votes in the administrative staff. An exchange where no one can manipulate or trick from the backend, and which allows not only a capital-rich elite, but everyone to earn interest on their securities as a direct liquidity provider

What would you do as a supervisory body?

Exactly! You are accusing the stock market. What else?

“There has to be someone to get things rolling.”

As absurd as it sounds, this is exactly what is currently happening in the USA. “I’m not surprised, just upset, disappointed and ready to fight,” writes Hayden Adams, founder of Uniswap, the very exchange we just described – the largest and most important decentralized exchange.

His team at Uniswap Labs develops the exchange without being able to intervene in trading itself, as it is entirely governed by smart contracts. Uniswap Labs has now received a so-called “Wells Notice” from the SEC. With such a letter, the Commission informs companies that it intends to take legal action in relation to certain allegations.

“The Uniswap protocol,” enthuses Adams, “has now processed more than two trillion dollars. Thousands of teams and developers have forked and built on our code. We have created a completely new financial infrastructure that is secure, fair, transparent and accessible. Our team did all of this in the US in our offices in New York.”

He continues, “I am often asked why we stay in the USA. My answer is simple.” Because Adams is ready to fight: “I believe that blockchain technology is an incredibly powerful technology, like the Internet. She is here and she will stay. So there has to be someone who can get things rolling, and that could just be us. I also believe that when you create technology that improves people’s lives, you shouldn’t hide.”

So Adams and his team prepare for a long trial. “This fight will take years. He may go to the Supreme Court, and the future of financial technology and our industry depends on it. If we stick together, we can win.”

Uniswap accuses SEC of abuse of power

But Adams does not explain what exactly it is about, what exactly the SEC is accusing Uniswap Labs of – and whether this has more to do with the UNI tokens and their distribution than with Uniswap itself. His chief legal officer, Marvin Ammori, also remains vague.

He, too calls the Wells Notice disappointing but not unexpected. He sees it as an “abuse of power”, essentially an abuse of office, which is also not surprising since several courts have recently certified this to the SEC. And when it comes to Uniswap, the SEC’s arguments are particularly weak, says Ammori.

The Securities and Exchange Commission only has the authority to regulate securities, not any asset, according to specific technical standards. Most tokens, such as Bitcoin, Ethereum, stablecoins or meme coins, are not securities, so the SEC has no say in their trading.

Neither the Uniswap protocol nor web apps and wallets meet the legal definitions of an exchange. Just a few weeks ago, explains Ammori, the Coinbase exchange won a ruling against the SEC, according to which crypto wallets are not brokers, even if the tokens in them are considered securities.

The SEC does not have the mandate to regulate Uniswap; they are ready to fight against this presumption of office – and are confident of winning!

“The Ultimate Showdown”

From a formal point of view, the SEC is not wrong. There are laws governing the trading of securities, and security-like tokens are traded on Uniswap without these laws being fully complied with, for example with regard to the request for KYC data, standardized investor information or listing requirements.

Since the SEC is tasked with ensuring compliance with the rules, it is understandable that it also feels called upon to intervene at Uniswap.

However, the SEC is completely violating its mandate to protect investors and ensure fair markets by cracking down on the most transparent and fair stock exchange that has ever existed. It doesn’t protect consumers, it doesn’t prevent manipulation or insider collusion – it just makes things worse. To be more precise: it prevents things from getting better.

And this could make the Uniswap trial the largest and most crucial crypto trial ever. The “Ultimate Showdon” calls Defi expert lito.eth shared it on Twitter. There are only two outcomes: first, the SEC’s complete defeat in its war on crypto, or second, all crypto developers leave the US forever. The first is more likely.


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