DeFi Exchange Uniswap Receives Enforcement Notice from the SEC

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

OnX, Hayden Adams, Uniswap’s CEO, shared that he had received a Wells notice. He expressed disappointment and frustration, stating, “I was not surprised, just annoyed and prepared to defend ourselves.”

A Wells notice is an initial communication from regulatory bodies like the SEC, signaling potential charges against the recipient. These notices often precede enforcement actions. In Adams’ X post, he didn’t explicitly mention what the SEC allegedly accused Uniswap of, but past Wells notices to crypto companies have typically involved unregistered securities offerings and sales as concerns.

“Adams expressed confidence in the legality of our products and the ethical nature of our business dealings. However, it’s become apparent that instead of establishing clear guidelines, the SEC has chosen to target established companies such as Uniswap and Coinbase. Meanwhile, they seem to be turning a blind eye towards questionable practices by entities like FTX.”

Adams said that Uniswap will fight the charges.

“Adams expressed his disappointment that the SEC prioritizes shielding complex financial systems over safeguarding consumers. He warned that defending our company and industry against the SEC could be a lengthy battle, potentially reaching the Supreme Court, with the fate of fintech and our sector at stake. United, we can prevail in this fight for freedom and the value of DeFi.”

A representative from the SEC declined to confirm or deny any ongoing investigation.

Regulation via enforcement

In a blog post published on Wednesday, Uniswap expressed the view that the Wells notice and the SEC’s lawsuits against Coinbase and other crypto companies are part of a larger political campaign to crack down on companies developing innovative technology on blockchains, including Uniswap itself.

Uniswap disputes the SEC’s classification of the tokens it sells as securities, although the SEC generally considers most cryptocurrencies except for Bitcoin to be under its regulatory oversight.

“Tokens, which are similar to digital file formats such as PDFs or spreadsheets, can hold various types of value. However, they don’t automatically equate to securities, just like how not every sheet of paper is a stock certificate. The majority of tokens being traded today fall into categories other than securities, including stablecoins, community and utility tokens, and commodities like Ethereum and Bitcoin.”

In instances where a token could potentially be classified as a security, the SEC has declined to provide a registration process for businesses.

Uniswap declined to provide additional information on the issue beyond pointing CoinDesk to Adams’ social media update and the organization’s related blog entry.

Waiting on Congress

Uniswap contended that the SEC lacks the legal power to oversee crypto markets, according to their interpretation, referencing SEC Chairman Gary Gensler’s past statement before Congress that new legislation is required for the agency to effectively regulate the industry. However, Gensler later expressed his belief that current securities laws are sufficient for the regulatory body to enforce rules in the crypto sector.

The progress on creating a thorough regulatory system for cryptocurrencies has slowed down significantly and is expected to make little advancement before the approaching presidential election.