Uniswap Labs Challenges SEC Wells Notice

A thorough response to the Wells Notice that was received from the U.S. Securities and Exchange Commission (SEC) has been released by the software business Uniswap Labs, which is situated in New York. Due to the fact that the Uniswap Protocol is a decentralized automated market maker (AMM) and does not operate as an exchange, broker, or clearing agency, its legal advice contends that it is not subject to the present securities laws.

Uniswap’s response emphasizes that the protocol’s autonomous nature and lack of centralized control exempt it from the SEC’s regulatory framework. According to the legal filing:

“The protocol is not an exchange under the securities laws … Secondary market trading does not constitute an investment contract, and the vast majority of volume traded on the protocol is bitcoin, ethereum, and stablecoins, or foreign transactions, none of which are subject to SEC jurisdiction.”

In its Wells Notice, the SEC charges Uniswap Labs with running an unregistered exchange and participating in activities that require broker-dealer registration. In response, Uniswap claims that their Ethereum blockchain-based protocol allows for the trade of digital assets without the need for middlemen and runs without centralized administration, which lowers transaction costs and improves user security.

Smart Contracts and Governance Tokens

Central to Uniswap’s defense is the claim that its operations do not align with statutory definitions of an exchange or broker. The response underscores that the Uniswap protocol facilitates peer-to-peer transactions via smart contracts, without a central entity managing trades or holding assets. Additionally, Uniswap Labs highlights that most transactions on the protocol involve cryptocurrencies like ether, wrapped bitcoin, and stablecoins, which the SEC has previously indicated are not securities.

The response also addresses the distribution of UNI governance tokens, stating that these distributions did not involve the sale of unregistered securities. Uniswap Labs asserts that UNI tokens were distributed to historical users, liquidity providers, and investors under exemptions from registration requirements. They challenge the SEC’s interpretation of the Howey test, arguing that secondary market transactions of UNI tokens do not constitute investment contracts.

“The UNI token is a governance token that allows holders to control the limited modifiable aspects of the protocol,” states Uniswap’s response. “And Labs did not offer or sell (and has never offered or sold) any tokens in transactions that required registration. Labs’ distributions of UNI governance tokens were exempt from registration, were non-securities transactions under the Howey test, or both.”