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SEC Accused of Double Standards in Its Regulatory Actions Against Uniswap

SEC’s crackdown on Uniswap: a questionable approach

Recent SEC actions against Uniswap have raised questions about the possibility of the regulator having a biased attitude concerning the DEX. 

Key takeaways:

  • Adam Cochran highlights contradictions between SEC's current stance and historical guidelines.
  • Uniswap's legal battles hinge on nuanced definitions of what constitutes an exchange.

The SEC's recent scrutiny of Uniswap, a leading decentralized crypto exchange, appears to deviate from its own longstanding policies, according to Adam Cochran of Cinneamhain Ventures. Cochran, in a detailed legal analysis on X (formerly Twitter), points out that the SEC has historically issued No-Action Letters that differentiated electronic trade routing systems from being classified as exchanges.


Cochran explained:

"The entities were looking to establish their first system for routing and matching trades electronically. They were concerned that would make them an 'exchange.' But the SEC concluded that because the execution was on a separate system that matching, routing, communicating, and ordering as a 'computer service system' did not meet the holistic definition of 'an exchange,'"

He further discussed precedents where the SEC differentiated front-end interfaces from exchanges. According to guidance in the late 1980s and early 1990s, an interface that aids in displaying and communicating with an exchange does not itself constitute an exchange, especially if the actual settlement occurs elsewhere.

Relevance of Uniswap's functionality in SEC's scrutiny

Cochran's analysis also touches on how Uniswap's operations, particularly concerning asset listing and the nature of transactions, should be viewed under these historical precedents.

Cochran noted:

 "The exchange needed to involve the legal transfer of the assets and/or finances. So even though a buyer on Uniswap may commit to a purchase by signing a transaction with their private key, the Uniswap Labs frontend isn’t what’s settling it," 

He argues that since Uniswap's frontend does not handle the clearing and settling of transactions, it should not be treated as an exchange.

Moreover, in 1998, the SEC determined that platforms listing common stocks electronically without being a traditional exchange do not qualify as exchanges if they do not clear and settle transactions.

Implications of the Wells notice and Uniswap's defense

Uniswap has been on the SEC's radar since 2021 and was recently issued a Wells notice, signaling potential enforcement actions. Uniswap Labs has maintained that its role is limited to developing the app's frontend and that the protocol's autonomous smart contracts handle the actual transactions independently. 

Cochran supported:

"In fact, we know these elements are distinct because you can execute trades on the smart contract through other interfaces (like Etherscan or swap aggregators), or even directly through a node," 

This ongoing regulatory challenge underscores significant questions about the application and consistency of SEC's policies, especially as they adapt to the rapidly evolving landscape of decentralized financial platforms.