DeFi Exchange Uniswap Receives Enforcement Notice From the SEC

Decentralized crypto exchange Uniswap received a notice from the U.S. Securities and Exchange Commission (SEC) that it intends to pursue an enforcement action, the company disclosed on Wednesday.

Uniswap's native token, UNI, dropped 9.5% immediately after the news.

Uniswap CEO Hayden Adams announced the receipt of the so-called Wells notice on X, saying he wasn’t surprised, “just annoyed, disappointed, and ready to fight.”

Wells notices are preliminary warnings that inform respondents of the charges the regulator is considering bringing against them. They usually lead to enforcement actions.

In a press conference on Wednesday afternoon, Uniswap’s COO Mary-Catherine Lader and Chief Legal Officer Marvin Ammori told reporters that the content of the Wells notice was focused on Uniswap acting as an unregistered securities broker and unregistered securities exchange. It remains unclear whether Uniswap’s native token, UNI, was implicated as a potential security in the SEC’s notice.

Ammori said that he believes that Uniswap does not meet the SEC’s current definition of an exchange. He also pointed to a recent ruling in the SEC's case against Coinbase – in which a judge said that Coinbase Wallet was not a broker – as a good sign for Uniswap's ability to beat the SEC on the same charges (the judge ruled that the SEC's other allegations against Coinbase could move forward).

“I am confident that the products we offer are legal and that our work is on the right side of history,” Adams wrote. "But it’s been clear for a while that rather than working to create clear, informed rules, the SEC has decided to focus on attacking long-time good actors like Uniswap and Coinbase. All while letting bad actors like FTX slip by."

Adams said that Uniswap will fight the charges.

“I'm frustrated that the SEC seems to be more concerned with protecting opaque systems than protecting consumers. And that we'll have to fight a US government agency to protect our company and our industry,” Adams wrote. “This fight will take years, may go all the way to the Supreme Court, and the future of financial technology and our industry hangs in the balance. If we stand together we can win. I think freedom is worth fighting for. I think DeFi is worth fighting for.”

An SEC spokesman said the agency "does not comment on the existence or nonexistence of a possible investigation."

Regulation via enforcement

In a Wednesday blog post, Uniswap wrote that the Wells notice, as well as the SEC’s lawsuits against Coinbase and other crypto companies, indicates that their action against Uniswap is just “the latest political effort to target even the best actors building technology on blockchains.”

Uniswap denies that the tokens it offers for sale are securities, despite the SEC’s position that most tokens besides bitcoin fall under their jurisdiction.

“The reality is that tokens are a digital file format, like a pdf or spreadsheet, and can store many kinds of value. They are not intrinsically securities, just as every sheet of paper is not a stock certificate,” the blog post said. “The overwhelming volume of traded tokens are definitively not securities – they are stablecoins, community and utility tokens, and commodities like Ethereum and Bitcoin.”

The blog post added that, in cases where a token may in fact be a security, “the SEC has refused to create a path for businesses to register.”

Uniswap did not comment further on the matter, aside from directing CoinDesk to Adams' social media post and the company's blog post.

Waiting on Congress

Uniswap argued that the SEC has “no authority from Congress” to oversee the crypto markets, citing SEC Chairman Gary Gensler’s past testimony before Congress that a new law would need to be passed to give the agency the necessary powers to effectively regulate the industry, though Gensler has since argued that the existing securities laws are sufficient for the regulator to police crypto.

Efforts to pass a comprehensive regulatory framework for the crypto industry have stalled, and will likely remain stagnant ahead of the upcoming presidential election.

UPDATE 1 (April 10, 2024 at 19:12 UTC): Updated to include additional information about Uniswap's blog post.

UPDATE 2 (April 10, 2024 at 19:56 UTC): Updated to include Uniswap's comments from a press conference.