Uniswap Responds to SEC Wells Notice

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  • Uniswap Labs has formally responded to the SEC’s Wells Notice, denying its tokens are securities.
  • The company has argued it does not operate an unregistered securities exchange, broker, or clearing agency.
  • Uniswap’s Chief Legal Officer has labeled the SEC a “repeat offender against crypto” and promised a legal victory.

DeFi company Uniswap Labs has formally responded to a Wells Notice issued by the US Securities and Exchange Commission (SEC), denying that it is a broker selling securities. The exchange outlined its defense against the SEC’s allegations, arguing that the company does not operate an unregistered securities exchange, broker, or clearing agency under existing securities laws. Its Chief Legal office labeled the SEC a “repeat offender against crypto” and promised to win if it came to a legal battle.

SEC Claims that Uniswap is a Securities Broker

The SEC issued Uniswap with a Wells Notice last month, which means that enforcement action is imminent. Although unpublished, Uniswap’s response to the notice affords us a clear gauge as to in which areas the SEC believes Uniswap is transgressing.

In its response, Uniswap contended that the Protocol is not a securities exchange or a broker-dealer and thus does not fall under the SEC’s regulatory purview, arguing that it eliminates traditional financial intermediaries, reducing transaction costs and increasing market efficiency.

The company’s rebuttal emphasized that the Protocol’s operations are fully automated and not controlled by any entity, including Uniswap, allowing users to trade digital assets directly from their self-custody wallets, with transactions processed and validated by the Ethereum network.

Uniswap Argues it Doesn’t Get Involved

The company asserted that it neither holds custody of user assets nor approves or declines trades, differentiating it from traditional exchanges and laid out several reasons why it believes the SEC is wrong in its claims.

Uniswap argues that the Protocol does not meet the statutory definition of a securities exchange under the Exchange Act. The company highlights several key points:

  • Purpose and Use: The Protocol is designed for general-purpose value exchange using the ERC-20 token standard, not specifically for securities transactions (“The vast majority of volume traded on the Protocol is Bitcoin, Ethereum, and stablecoins, or foreign transactions, none of which are subject to SEC jurisdiction.”)
  • Decentralization: The Protocol operates autonomously, without a central organization or group controlling it (“The Protocol is not controlled by, or comprised of, any ‘group of persons,’ let alone Universal Navigation Inc.”)
  • Lack of Traditional Exchange Features: The Protocol does not have an order book, match orders, or provide a centralized marketplace. Transactions are executed directly between users’ wallets and the liquidity pools (“The Protocol does not meet the statutory definition of an Exchange. It does not match orders, bring together buyers and sellers, or constitute a market place.”)

Regulatory and Legal Implications

Uniswap argued in its rebuttal that pursuing enforcement action based on these allegations would not only exceed the SEC’s statutory authority but also contravene established legal principles. The company pointed to recent legal precedents that limit the SEC’s jurisdiction over digital assets and decentralized technologies.

Furthermore, Uniswap Labs asserted that the SEC’s attempt to regulate through enforcement, without clear legislative guidance, violates due process and could stifle innovation in the burgeoning DeFi sector, noting, “An enforcement action would harm the public interest and undermine the Commission’s goals.”

The rebuttal notice urged the SEC to reconsider, calling for regulatory clarity and a cooperative approach to fostering innovation in the digital asset space rather than damaging regulation, recommending that “the Commission should not pursue this case.”

Uniswap’s legal chief, Marvin Ammori, took to X to summarise the company’s position in a lengthy post:

Ammori claimed that “One day, years from now, the protocol (and those like it) may be how people buy and sell everything, everywhere,” noting that it was counterproductive to clamp down on this method of exchange rather than work out how to embrace it. He added, “Our case is so strong that the SEC is trying to change the law to fight us” and issued a battle cry:

Our outside counsel has already defeated the SEC in the Ripple case (Andrew Ceresney) and in the Grayscale case (Don Verilli). 2-0 so far. And we have a very strong case. If forced to litigate, we will win.

It is highly unlikely that the SEC will back down, if past actions are anything to go by at least, meaning that another crypto showdown could be on the cards.