The decentralised finance (DeFi) protocol Uniswap (UNI) has won a lawsuit brought against it last year, accusing it of stealing from its customers following the listing of fraudulent tokens. Against all expectations, the judge ruled in favour of Uniswap, stating that the protocol was merely a relay platform and that it was not responsible for the tokens offered on it.
Uniswap wins its case
Last week, the courts handed down their verdict in a lawsuit brought by an American woman from North Carolina against the Uniswap decentralised finance protocol (DeFi) in April 2022. The plaintiff, who was also representing other investors, claimed to have suffered considerable financial losses after purchasing certain tokens listed on Uniswap.
Under the same lawsuit, the plaintiffs directly accused Uniswap of “siphoning off” more than a billion dollars from its own clients by selling unregistered securities (Ethereum is cited alongside EthereumMax, Bezoge, Matrix Samurai, Rocket Bunny and Alphawolf Finance).
In doing so, the plaintiffs saw fit to accuse Uniswap – which is decentralised, remember – of not having registered as a broker and an exchange to offer the securities in question.
This would have been required by law if the tokens in question were indeed considered to be financial securities. If so, Uniswap would have had to register with the Securities and Exchange Commission (SEC).
However, against all expectations, the judge in charge of the case (who is also handling the dispute between Coinbase and the SEC) ruled that Uniswap was not responsible for the tokens listed on its platform, given its decentralised nature. Indeed, since Uniswap is only a relay, the plaintiffs should logically turn against the issuers of the tokens concerned.
Except that these issuers are obviously not identifiable :
” In a perfect (or at least more transparent) world, complainants would be able to seek redress from the actual issuers who defrauded them. In the absence of such information, plaintiffs can only argue that Uniswap Labs facilitated the transactions in question. “
Hayden Adams, the founder of Uniswap, reacted on X to show his surprise while celebrating this victory:
Huge win, long live DeFi
One longtime fear of mine has been bad legal interpretation of our complex, technical industry
It’s highly motivating to see US courts hold up arguments I’ve felt deeply for years
Below are some of the most BASED (smart) court comments pic.twitter.com/lb7ZP4pD1C
– hayden.eth (@haydenzadams) August 30, 2023
Thus, the judge found that even though Uniswap charged a transaction fee, this was not sufficient to hold it liable for the listed tokens.
Legal fog surrounding DeFi and tokens
The judge also said that the law did not yet propose a rule applicable to this type of case, where a DeFi protocol is directly involved:
“No court has yet ruled on this issue in the context of a decentralised protocol’s smart contract “
She also referred to a statement by Gary Gensler, the chairman of the SEC, who had said in 2021 that decentralised finance was “under further scrutiny”. Finally, the judge said:
“The Court declines to expand the federal securities laws to cover the alleged conduct, and concludes that plaintiffs’ concerns are better addressed to Congress than to this Court. “
In another notable development, the judge also referred to Bitcoin (BTC) and Ether (ETH) as “crypto commodities,” meaning that regulation of them is the responsibility of the Commodity Futures Trading Commission (CFTC) and not the SEC. The SEC said it refused “to extend the federal securities laws to cover the alleged conduct”.
So can DEX expect to be cleared of all charges in similar situations in the future? It’s hard to predict, as judges can come up with different opinions in the cryptocurrency world. In any case, a report last November indicated that 98% of tokens listed on Uniswap were scams or rug pulls…