The SEC Is Investigating NY-Based Uniswap Labs

September 7, 2021 04:00 PM
Crypto Story of the Day

Crypto Story of the Day



BTC was unchanged as alt-coins sold off this morning. Solana (SOL) is the exception and continues to outperform, up 29% over 24 hours.

Crypto Story of the Day

The SEC is investigating New York State-based Uniswap Labs, according to the WSJ. In an interview with the newspaper in August, Gensler said DeFi projects aren’t immune to regulation.

The WSJ reports that regulators are “examining Uniswap Labs,” based out of New York State, and the “the main developer of the world’s largest decentralized exchange, called Uniswap,” according to individuals familiar with the matter. Attorneys working for the SEC are “seeking information about how investors use Uniswap and how it is marketed.”

A spokesman for Uniswap Labs responded that the firm is “committed to complying with the laws and regulations governing our industry and to providing information to regulators that will assist them with any inquiry.” The SEC declined to comment. The investigation “appears” to be in early stages and doesn’t involve formal allegations.

Gensler told the WSJ, though the article doesn’t directly quote the Chairman, that DeFi venues may be “controlled by developers or middlemen that benefit from incentives such as trading fees and digital tokens that give holders governance rights over the program.” The Chairman also previously told the WSJ that “projects that reward participants with valuable digital tokens or similar incentives could cross a line into activity that should be regulated, no matter how ‘decentralized’ they say they are.”

Uniswap launched a “governance token” in September 2020. At the token’s launch, 60% of the supply was “allocated to Uniswap community members,” 21% to “team members and future employees with 4-year vesting,” and 18% to “investors with 4-year vesting.”

In July, Uniswap Labs announced that it was restricting particular coins from its website, a centralized interface with the Uniswap venue. In the announcement, Uniswap Labs claimed it “[monitors] the evolving regulatory landscape” while the decision to restrict certain tokens is “consistent with actions taken by other DeFi interfaces.” The announcement highlights that the protocol, unlike the interface, “is a set of autonomous, decentralized, and immutable smart contracts” which “provides unrestricted access to anyone with an Internet connection.”

The list of barred tokens included a wide range of ERC-20 token types. 

Over the past several weeks, Gary Gensler has made several public appearances in which he’s expressed his ambition and perspectives on regulating crypto. These have included a speech in which Gensler described crypto as “rife with fraud, scams, and abuse” and proclaimed that “[t]here’s a great deal of hype and spin about how crypto assets work.” 

The UNI token has a current market cap of USD 18 billion. Over the past month, the coin has added USD 2 billion to its market cap and currently has USD 7.14 billion locked in its smart contracts. 

While Gensler has been vocal about his views on regulating crypto and has foreshadowed regulatory action, similar positions have been expressed in the past. For example, former SEC Chairman Jay Clayton said in 2018 that every ICO he had seen is a security— a statement Gensler has agreed with. 

As such, Gensler has largely reaffirmed the established view that crypto’s technical novelty doesn’t shield it from existing rules. In hindsight, an investigation of Uniswap Labs hasn’t come without ample warning that regulators had been particularly focused on DeFi venues.

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