Tracking and Analysis #SEC Intended to sue Uniswap Labs
The day before yesterday, SEC sent a Wells notice to Uniswap Labs. The subsequent outcome of this matter may affect the development of the entire crypto Defi field. It intends to plunder the innovation in the DeFi field and threaten decentralization. It will have a direct and serious impact on the token price of the#Defisector, which is worthy of attention!
【1】What is a Wells Notice? It is important to first understand:
"Wells Notice" is a notice sent by the U.S. Securities and Exchange Commission (SEC) to an individual or company, which means that the SEC has completed and discovered the other party's violations and illegal activities, and intends to take further legal action or administrative penalties.
The importance of a Wells Notice is that it communicates to the recipient the regulator’s intention to take enforcement action and gives the recipient time to prepare a defense or the opportunity for legal assistance.
In simple terms: "I'm going to fuck you, so be prepared."
It is worth noting that receiving a Wells Notice does not necessarily mean that a formal lawsuit will be filed. The usual process is:
1. After the SEC completes its investigation of a company, it issues a warning to the individual or company;
2. After receiving the Wells Notice, the individual or business will have 30 days to refute the allegations and present arguments to prove their innocence;
3. After issuing the notice, the SEC has 6 months to decide whether to file a complaint with the court or take enforcement action;
Although it has not been confirmed that a lawsuit will be filed, it is likely to happen. It is understood that it may be next month~
Examples of crypto entities that have been issued Wells Notices by the SEC:
Ripple Labs: In December 2020, one month after the SEC issued the Wells Notice, it accused Ripple and two of its executives of selling securities without registration, resulting in XRP being immediately removed from Coinbase;
Coinbase: In March 2023, the SEC sent a Wells Notice to Coinbase. Coinbase's stock price plummeted by more than 15% after hours, and protests continued. The lawsuit is still ongoing.
Paxos (BUSD stablecoin issuer): In February 2023, shortly after receiving the SEC’s Wells Notice, Paxos terminated its cooperation with Binance on BUSD, and the New York Department of Financial Services ordered Paxos to stop minting new BUSD.
【2】What violations and illegal acts does the SEC intend to sue Uniswap for?
The SEC has not yet formally filed a lawsuit, and UniswapLabs has not provided a copy of the Wells Notice, so there is no relevant case file or public notice to learn about the specific allegations, but the SEC’s jurisdiction is nothing more than these allegations:
1. Allegations of “operating an unregistered securities exchange” and “offering and selling unregistered securities”;
2. Allegations of “fraudulent and misleading conduct”;
3. Insider trading;
4. Violation of disclosure requirements;
5. Violation of regulatory requirements (such as KYC and AML);
Looking back at last September, Uniswap was sued by users in the United States, demanding that Uniswap be held responsible for investors who suffered losses from the "fraudulent tokens" issued on the protocol. It also accused the platform of circulating tokens that were securities and operating an unregistered exchange, violating the SEC's registration requirements.
In the end, the judge ruled that the "autopilot" Uniswap protocol was a "legitimate" use, and the protocol developers were not responsible when others abused the protocol.
At the same time, it stated that the SEC has not yet made a "final decision" on whether certain cryptocurrencies are "commodities" or "securities," and that "plaintiffs' concerns about federal securities laws" are better raised with Congress rather than with this court."
The lawsuit was eventually dismissed by the court and Uniswap won!
Yes, currently judges in various courts in the United States are quite sensitive to the attributes of cryptocurrencies, and no one is willing to take the risk, because it will be introduced as a reference for other crypto case rulings (or appeals/influences) later.
In addition, according to the Howey test defined by the U.S. Supreme Court, the Uniswap protocol and wallet do not meet the legal definition of a securities exchange or broker, and the $UNI $UNI protocol token does not meet the definition of an "investment contract" because there is no contract or promised return between Uniswap Labs and the holder, and the Uniswap protocol is decentralized, just like Bitcoin, so it is impossible to constitute a "sale of securities" to institutional/individual investors.
* Therefore, the possibility of 1.2 charges is weakened;
Of course, the SEC is well aware of this, so I personally believe that the purpose of the SEC's lawsuit this time is to "control UniSwap itself." Similar to the U.S. government's seizure of control and regulatory power over the "BinanceUS" centralized exchange from Binance, it attempts to exercise jurisdiction over decentralized exchanges and protocols, challenging the core principles of decentralization and autonomy that support the DeFi ecosystem.
Unless the U.S. Congress explicitly passes relevant legislation, the SEC has sufficient rights and enforcement reasons. At its core, this is because Uniswap's mechanism determines that it is still committed to providing services to U.S. customers.
According to inquiries, the number of complaints from American investors on Uniswap due to losses is astonishing, and the diligent SEC's desire to protect American investors is "strong and real" (this is particularly profound). Obviously, it "can't sit still" and wants to go deep into the roots of the regulatory platform to solve this problem.
The scope of the charges is as in Item 4.5. The specific litigation angle may start from protecting the property and information security of American investors, requiring Uniswap to hand over operational control, and requiring it to disclose and report important platform-related information to American users and relevant government departments on time. Violations of KYC/AML are not ruled out, and other regulatory authorities may need to intervene in the judicial process.
[3] It may take several years to get a final judgment. As we all know, the United States has not yet clearly legislated a legal framework for crypto regulation, and there is no precedent for a court ruling on the Uniswap case, so the SEC may not gain an advantage in court in the short term.
At the same time, the founder of UniSwap also said: "This fight will last for several years and may be appealed all the way to the Supreme Court." It is believed that it is difficult for local judges to make decisions, which is why the United States has split up so many appellate circuit courts. It is conceivable that the SEC is ready to gnaw on a fragmented and difficult bone.
The judicial process in the United States is complex and lengthy. What is more special is that the judge ruled that such cases are "sensitive newbies", so the SEC's lawsuit may still be conducted in the Federal District Court for the Southern District of New York, and Judge Katherine Polk Failla will be assigned to hear the case (both the Uniswap class action lawsuit and the SEC v. Coinabse case are handled by this judge)
【Finally】Things can be viewed from two perspectives, there are good and bad sides
If the court rules in favor of Uniswap, the DeFi space will thrive.
Once the SEC wins the case, crypto DEX will face a wave of sanctions and will be forced to come up with a settlement plan to appease regulators. Then innovation and decentralization in the DeFi field will be severely curbed.
Although SEC vs Uniswap may seem like a negative event, the regulatory clarity it will bring to the industry is worth looking forward to.
The DEX leader is standing on the edge of the cliff, and I believe other Dex are trembling at this moment!
🩷Thank you for your patience in reading
🩷It’s not easy to write articles, don’t be stingy with your likes + comments + reposts🩷
Boring will continue to track the latest developments of the SEC vs Uniswap case. The next push will be for everyone $UNI#Uni Holders/supporters list the most noteworthy time points and information acquisition channels! Don’t forget to like it! 👍#Defi #DEX #UNI
