SEC’s Allegations Against Uniswap Spark DeFi Community Backlash

The largest decentralized exchange, Uniswap, has received a warning from the U.S. Securities and Exchange Commission (SEC) about a potential lawsuit.

Today @Uniswap Labs received a Wells notice from the SEC.

I’m not surprised. Just annoyed, disappointed, and ready to fight.

I am confident that the products we offer are legal and that our work is on the right side of history. But it’s been clear for a while that rather than…

— hayden.eth ? (@haydenzadams) April 10, 2024

The notice in question is a Wells notice, a letter in which the regulator indicates that it has found violations of securities laws and may file a civil lawsuit. 

Typically, the SEC allows 30 days for a response with legal justification as to why charges should not be brought against the recipient of the notice. 

“I’m not surprised. Just annoyed, disappointed, and ready to fight. I am confident that the products we offer are legal and that our work is on the right side of history,” said Uniswap founder Hayden Adams.

He noted that the platform was initially an experiment in “radically decentralized, fully automated on-chain markets.” It was uncertain whether this would attract consumers. To date, the protocol has processed over $2 trillion in transactions, and “thousands” of teams have used it for their own developments, Adams added.

“We have created an entirely new financial infrastructure that is transparent, fair, safe, and accessible, fueling the entire industry,” he wrote.

According to the Uniswap creator, it has long been clear that instead of implementing clear and justified rules, the SEC has decided to focus on long-standing good-faith players like Coinbase. Meanwhile, bad actors, such as FTX, escape the regulator’s attention, Adams emphasized.

“Yes, I am disappointed that the SEC seems more concerned with preserving opaque systems than protecting consumers. And that we will have to fight a government agency to preserve our company and industry,” he stated.

Adams suggested that the process could take years and might reach the Supreme Court.

Uniswap Team’s Cautious Optimism

Uniswap’s chief legal officer, Marvin Ammori, considers the SEC’s arguments against the decentralized exchange to be weak.

1/ Today’s Wells notice against @Uniswap is disappointing, but is not unexpected from this SEC

It’s another abuse of power – unsurprising from an SEC that:

Last month, a federal judge ruled committed a “gross abuse of power” by lying in court about a crypto project

— Marvin Ammori (@ammori) April 10, 2024

The commission only has authority over securities, which clearly does not include most crypto assets such as Bitcoin, Ethereum, stablecoins, or meme coins, Ammori noted.

The SEC’s lawsuit against Ripple demonstrated that secondary market transactions with such assets are also not considered investment contract offerings, he recalled.

In the case against Coinbase, the court rejected the regulator’s claim that crypto wallets could be considered securities brokers. This decision is also applicable to the Uniswap protocol, Ammori is convinced.

Previously, a judge in one of the proceedings acknowledged that the platform is primarily used for legitimate purposes. This means that the regulator’s existing exchange rules do not apply to Uniswap, the lawyer also noted.

“If the SEC had authority over our non-custodial, intermediary-free products, it could tell us how to register them. It cannot and therefore does not,” Ammori concluded.

Community Views SEC Actions as an Attack on DeFi

The SEC’s allegations against Uniswap sparked a flurry of comments. Many agreed with Adams’ view that the potential lawsuit concerns the fate of the crypto industry as a whole.

This is the big one folks.

Massive escalation by the SEC and whitehouse. Uniswap is a poster child for crypto decentralization — instead of celebrating @haydenzadams as a generational entrepreneur they’re taking him to court.

A war on crypto is a war on the internet. pic.twitter.com/g7c7PIxaAK

— RYAN SΞAN ADAMS — rsa.eth ? (@RyanSAdams) April 10, 2024

“Folks, this is very important. Serious escalation by the SEC and the White House. Uniswap is a model of crypto decentralization: instead of celebrating Hayden Adams as a generational entrepreneur, they are taking him to court. A war on cryptocurrency is a war on the internet,” wrote Bankless co-founder Ryan Adams.

Blockworks founder Jason Yanowitz emphasized that the regulator’s policy regarding the crypto industry is pushing it outside the United States.

The SEC is pushing the best founders offshore.

Hayden built Uniswap from Brooklyn. The US government is now telling future Haydens to go build in Dubai or Singapore.

This has to change soon or we’ll crush innovation for years.

— Yano ? (@JasonYanowitz) April 10, 2024

“Hayden built Uniswap in Brooklyn. The US government is now advising future Haydens to build in Dubai or Singapore. This situation must change soon, or we will stifle innovation for years,” he believes.

Uniswap’s creator emphasized in his statement that he remained with the team in New York despite unfavorable regulation, as they were doing nothing illegal and only trying to contribute to transforming the country’s financial system.

the war on defi has begun

we must bring privacy onchain and continue to build censorship resistant systems https://t.co/IIpDvuNqNc

— Andy (@ayyyeandy) April 10, 2024

“The war on DeFi has begun, we must ensure on-chain privacy and continue to build censorship-resistant systems,” supported The Rollup co-founder known as Andy.

Offchain Labs’ strategy director A.J. Warner stated that today “we are all team Uniswap.”  

We are all team @Uniswap today. DeFi is worth fighting for. Sovereignty is a noble endeavor, and the transparency of blockchain technology and software is unrivaled by traditional systems. This will be a landmark for all of us. https://t.co/8OQTfM7dh9

— A.J. Warner (@ajwarner90) April 10, 2024

“DeFi is worth fighting for. Sovereignty is a noble endeavor, and the transparency of blockchain technology and software is unrivaled by traditional systems. This will be a landmark for all of us,” he emphasized.

Renowned industry lawyer Jake Chervinsky also expressed support for Adams in the event of potential litigation.

I’m sorry you have to fight this battle on behalf of everyone in DeFi, but I couldn’t possibly have more confidence in you and your team to prevail ?

Today we are all ??

— Jake Chervinsky (@jchervinsky) April 10, 2024

“I’m sorry you have to fight this battle on behalf of everyone in DeFi, but I couldn’t possibly have more confidence in you and your team to prevail,” he wrote.

Some reminded Uniswap’s creator that he was among the critics of HEX. In July 2023, the SEC sued the founder of the crypto project Richard Heart for alleged sales of unregistered securities. Heart, in turn, offered to join his case as an amicus curiae, calling it support for Uniswap.

#DeFi is the freedom, and freedom is the basic right of the humankind ? make love, not war ❤️ https://t.co/C8SFqwDrU4

— Sergej Kunz (@deacix) April 10, 2024

“DeFi is freedom. And freedom is the basic right of humankind. Make love, not war,” wrote 1inch co-founder Sergej Kunz.

Back in September 2023, SEC’s head of enforcement, David Hirsch, stated that the agency was examining the activities of certain DeFi protocols for potential legal violations.