• L Misthos and M Bacina

SEC Targets Uniswap Labs

Updated: Sep 15

The United States' Securities and Exchange Commission (SEC) has launched an investigation into Uniswap Labs, the company behind the interface to the biggest decentralised finance (DeFi) exchange, Uniswap.

The investigation comes amid growing popularity of DeFi and increasing confidence in blockchain technology, peer-to-peer transactions and cryptocurrency trading. Despite the de-centralised nature of the technology, the SEC still insists on attempting to regulate it, a task they have been gearing towards since 2018.

For clarity, Uniswap Labs only provides a web-based interface to the Uniswap Protocol, and is not the protocol itself. The Uniswap Protocol is made up of smart contracts running on public blockchain infrastructure and which is not under the control of any one party. Anyone, with sufficient technical skill, can interface with the protocol directly without needing to use Uniswap Lab's web interface.

The investigation into Uniswap Labs centers on how the interface offered (and potentially the protocol itself) is used and how it is marketed. The probe comes as no surprise considering SEC chairman Gary Gensler has openly criticised DeFi and cryptocurrency networks, expressing a view that most consumers are not educated enough to judge the risks of crypto themselves.

Uniswap, like many decentralised exchanges, focuses on freedom of design. The protocol allows users to interact with "liquidity pools" to trade tokens with all the trades taking place by automated market-makers, and not counterparties. Other DeFi projects are building out fully automated smart contracts providing other services which closely resemble financial products, such as loans, crypto insurance, perpetual swaps and derivatives through decentralised means.

In July, Uniswap Labs restricted access to certain tokens, such as tokenised stocks and stablecoins, on the Uniswap interface they operate following SEC comments concerning digital assets potentially being securities. It remains to be seen how Uniswap will respond to this most recent SEC action. Uniswap's founder Hayden Adams, has been called one of the "top people in crypto" for his work on Uniswap.

Some suggest that strict and sweeping regulation of the digital market will encounter considerable push-back. Negative comments by the SEC chairman coupled with investigations like this risk regulators being seen to be aggressively supressing innovation around. We suggest considered and measured regulation is required to balance the unique innovation of digital assets with consumer protection.