Cryptocurrency exchange Uniswap released a statement asserting that the U.S. Securities and Exchange Commission’s legal theories on crypto are “weak and wrong.” The statement came in response to the Wells Notice the SEC filed against the crypto exchange a few weeks ago, indicating it will pursue legal action against Uniswap.
The SEC’s biggest misconception, according to Uniswap, is that all digital tokens are securities, when in fact they should be considered a file format for value. The company accused the SEC of attempting to unilaterally alter the definitions of brokers, exchanges, and investments.
“It’s significant that the SEC has chosen to pursue a case against a protocol like Uniswap,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “In a sense, it’s a battle against decentralized code. They’re overreaching and opening a can of worms that shouldn’t be opened—decentralized protocols operate far differently than a traditional company like Apple or Microsoft.”
Expanding Jurisdiction
The Uniswap Protocol gives users a platform to securely exchange crypto directly with each other. The autonomous software excludes intermediaries, allowing for faster and inexpensive transactions. Uniswap asserted its tokens are a file format just like a PDF, and its protocol is open to anyone with an internet connection.
The SEC views the Uniswap Protocol as an unregistered securities exchange run by Uniswap Labs and considers its UNI tokens an investment contract. Uniswap rebutted that the SEC’s goal is to expand its jurisdiction beyond exchanges to communications technology and seek oversight of all markets.
Security or Commodity
The notice to Uniswap was the latest in a series of Wells Notices and lawsuits the SEC has brought against crypto exchanges. The commission has taken action against many of the major crypto players, including Coinbase, Robinhood, and Binance. All those cases hinged on the assumption that crypto should be considered a security, not a commodity.
“I’d be very surprised if Uniswap doesn’t win this lawsuit,” Hugentobler said. “Instead of enacting punishments, the SEC should work with exchanges to establish a sound regulatory framework for crypto companies. All these companies have tried being as compliant as they can, albeit in a decentralized manner, yet they are still being targeted by the SEC.”