Uniswap Labs has issued a defiant response to Wells’ notice from the SEC, claiming the agency’s attempts to regulate DeFi are misleading and legally flawed.
The company said in a May 20 blog post that it is confident it will emerge victorious if forced to sue by the SEC. Uniswap Labs said:
“We are convinced that our work is on the right side of history. The SEC should not spend its taxpayer-funded resources pursuing a case against us.”
The answer comes amid a broader clash over the future of financial technology and market regulation.
Legally unsound
Uniswap Labs criticized the SEC’s efforts to expand its jurisdiction over communications technology and digital markets, claiming that the agency’s legal arguments are weak and have been repeatedly refuted in court.
The company said:
“We believe the SEC should embrace open source technology that improves legacy commercial and financial systems, rather than attempting to litigate its existence.”
It also emphasized that the Uniswap Protocol aligns with the SEC’s mission to protect investors and maintain fair, orderly and efficient markets.
Uniswap Labs championed the Uniswap DEX as a major market innovation that has enabled users to transact directly without relying on centralized intermediaries. It added that the protocol – which operates autonomously and has facilitated $2 trillion in trading volume without a single hack – provides transparent, low-cost and efficient trading that can be accessed 24/7 worldwide.
Similar to a PDF file
In its full response from Wells, Uniswap Labs rejected the SEC’s claims that the protocol is an unregistered securities exchange and that the UNI token constitutes an investment contract.
It argued that the ERC-20 token standard it supports is a “common file format for all forms of value.”
The company stated:
“A token is a file format, such as a PDF. The Protocol is a general-purpose computer program that anyone can use and integrate, like TCP/IP.”
Uniswap Labs added that even if the SEC is correct that some securities transactions occur through the protocol, the protocol is “almost exclusively used for non-securities transactions” involving Ethereum, wrapped Bitcoin, stablecoins and memecoins.
The SEC has argued that Uniswap is an exchange operated by Uniswap Labs and its interface acts as an unregistered broker-dealer.
However, Uniswap Labs argues that the SEC’s position is based on incorrect assumptions and argues that these claims incorrectly equate a digital file format with a security.
The company said the UNI token was dropped to thousands of users without the expectation of making a profit from the performance of the DEX, implying that it does not meet the criteria of the Howey test.
Uniswap is confident of victory
Uniswap Labs CLO Marvin Ammori expressed confidence in Uniswap’s position, mention on X:
“We have a very strong case. If we are forced to litigate, we will win.”
He claimed that Uniswap Labs’ case is “so strong that the SEC is trying to change the law.” In addition to describing the argument over file formats, Amorri said the SEC is redefining “exchange” and other terms beyond their current meaning.
He said courts have rejected similar arguments against Coinbase, ruling that self-custody wallets do not meet the requirements to be a broker.
Uniswap Labs has hired lawyers who won two high-profile cases, including former SEC enforcement chief Andrew Ceresney and former U.S. Attorney General Don Verrilli.
The two lawyers represented Ripple and Grayscale respectively against the SEC.
The SEC sent a notice from Wells to Uniswap Labs on April 10, indicating that the SEC’s Enforcement Division planned to recommend a lawsuit against the company.
In recent weeks, the SEC also filed Wells charges against Ethereum development company Consensys and retail brokerage Robinhood.
The SEC has not yet filed the expected lawsuits against the three companies. Only Consensys responded with a preventive lawsuit.