Uniswap’s leveraged tokens are illegal and fined

Uniswap Labs develops and maintains an open platform that allows users to trade among hundreds of liquidity pools on the protocol. The CFTC found that among the digital assets traded on the protocol and through Uniswap, some tokens provide users with leverage on digital assets such as Ethereum and Bitcoin.

Under CFTC regulations, these leveraged tokens are considered leveraged or margined commodity trading and must be traded on a CFTC-registered exchange. However, Uniswap Labs was not registered, so offering these leveraged tokens was deemed illegal.

CFTC Director of Enforcement Ian McGinley said: Today’s action once again demonstrates that law enforcement will vigorously enforce the Commodity Exchange Act (CEA) as digital asset platforms and the DeFi ecosystem evolve. DeFi operators must remain vigilant to ensure transactions comply with regulations.

However, the CFTC also recognized Uniswap Labs’ strong cooperation with law enforcement in investigating the matter and reduced the civil penalty to $175,000.​

Uniswap Labs legal director Katherine Minarik posted on X that the company was pleased to "put to rest" the case.

Uniswap Labs resolved a CFTC matter involving a small subset of transactions conducted through our minority token interface with a $175,000 fine in a standard no-admit settlement. We’re excited to resolve this issue and continue to focus on building the future of DeFi for everyone.

Members’ criticism: supervision through law enforcement

However, some members believe that the CFTC’s move is “supervision through enforcement.” Given that the Commodity Exchange Act and CFTC rules are formulated for traditional, centralized market infrastructure providers and intermediaries, the CFTC should formulate rules, or at least Provide guidance so DeFi protocols know how to comply.

CFTC Commissioner Summer K. Mersinger also warned that the move could lead to DeFi developers creating businesses, jobs and economic activity overseas, away from the United States. This broad extension of holding platforms accountable for actions that occur using their protocols is also troubling and would seriously impede the progress of innovation.

[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.

  • This article is reprinted with permission from: Lian News