The United States Securities and Exchange Commission (SEC) has halted its investigation into one of the largest decentralized exchanges (DEX) Uniswap. According to reports, the agency will close its investigation and will not proceed to file charges against the platform.
The case, which came to media attention in April 2024, was being watched closely by the crypto community. Most people saw the case as a way to figure out what the agency wanted to do with the decentralized finance sector.
The SEC, under Gary Gensler, had been looking into various platforms if they were offering securities, with Uniswap being one of those platforms. The SEC was also looking into the platform to determine if its UNI token fell under the definition of security. The agency, which issued a Wells Notice in April, has now moved to close the case.
SEC drops investigation into Uniswap
Uniswap did not take the charges lying flat, as it filed a 40-page response to the SEC in May 2024, telling the agency that its platform did not fulfill the conditions to be seen as an exchange under the laws of the United States. “The SEC’s entire case rests on the false assumption that all tokens are securities. Tokens are, in fact, simply a file format for value,” Marvin Ammori, the platform’s chief legal officer said at the time.
Ammori mentioned that if the SEC wants to regulate Uniswap under the current securities law, then it would have to make changes to the definition of terms like brokers, exchange, and investment contracts. He added that the job was beyond the authority of the body. While the company was fighting the SEC, the CFTC filed its charges, noting that the platform may have violated US commodity trading laws.
The agency ruled that Uniswap had illegally offered leveraged or margin retail commodity transactions through its platform. Unlike the SEC, which was focused on securities law, the CFTC targeted specific trading products on Uniswap that allowed users to gain leveraged exposure to digital assets like Bitcoin and Ethereum.
Uniswap paid a $175,000 fine and agreed to cease and desist from further violations of the Commodity Exchange Act (CEA). The fine was relatively small, but it showed that regulators were also focusing on the defi sector. CFTC Director of enforcement Ian McGinley said, “DeFi operators must be vigilant to ensure that transactions comply with the law.”
The CFTC also said the platform breached its rules on adding illegal leveraged tokens to its trading pools. “The order finds these leveraged tokens are leveraged or margined commodity transactions that did not result in actual delivery within 28 days and therefore can be offered to non-Eligible Contract Participants only on a board of trade that has been designated or registered by the CFTC as a contract market, which Uniswap Labs was not,” said CFTC.