Uniswap Challenges SEC's DeFi Regulations Citing Supreme Court Ruling

Uniswap Labs has formally petitioned the U.S. Securities and Exchange Commission (SEC) to reconsider its proposed rule changes to the Securities Exchange Act of 1934, aimed at broadening the definition of an “exchange” to encompass decentralized finance (DeFi) platforms. The decentralized exchange (DEX) argues that these amendments represent an overreach of the SEC's authority and are likely to be invalidated by the Supreme Court, based on a recent landmark decision.

Supreme Court Ruling and Chevron Deference

Uniswap Labs' Chief Legal Officer, Katherine Minarik, emphasized that their primary argument hinges on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo, which significantly alters the legal landscape. This decision effectively overturns the Chevron deference, which had previously permitted federal agencies to interpret ambiguous statutory provisions.

Without the Chevron deference, the SEC's interpretation of the term ‘exchange’ lacks support and is likely to be rejected by courts. Uniswap Labs asserts that the statutory definition does not encompass DeFi protocols and that the SEC’s efforts to amend it will likely fail judicial scrutiny.

SEC’s Wells Notice and Uniswap’s Defense

In April, Uniswap Labs received a Wells Notice from the SEC, indicating the regulator's intention to pursue legal action against the company. The SEC alleges that Uniswap is involved in securities trading without proper registration as an exchange or a broker. Uniswap Labs, however, maintains that its protocol does not qualify as an exchange but functions as a passive technology platform.

The company argues that the SEC would need to fundamentally alter the definition of an exchange to include their operations, an interpretation they believe is legally untenable.

Call for Extended Comment Period

In light of the Supreme Court ruling, Uniswap Labs is urging the SEC to reconsider the proposed amendments and reopen the comment period. They argue that the legal environment has changed significantly, necessitating new public input. The original comments were based on a legal standard that assumed Chevron deference, which is no longer applicable.

Uniswap Labs stresses the importance of ensuring that any new regulations align with the current legal framework and do not exceed the limits set by Congress.

Potential Impact on Innovation and Legal Ambiguities

Uniswap Labs contends that the proposed amendments could stifle innovation and create legal uncertainties. They warn that the changes could adversely affect the DeFi industry, which handles trillions of dollars in transactions.

The company references previous court rulings, such as SEC v. Coinbase, Inc. and SEC v. Binance Holdings, which show judicial reluctance to apply securities laws to decentralized crypto services. They criticize the SEC’s approach of regulating through enforcement actions rather than clear, definitive rules, which they argue leads to inconsistent legal outcomes and regulatory confusion.

Uniswap’s Commitment to Legal Compliance

Despite the regulatory pressures, Uniswap Labs remains committed to defending its operations and the broader DeFi ecosystem. Uniswap’s founder, Hayden Adams, has previously stated that the company operates within legal boundaries and criticized the SEC’s regulatory approach as problematic.

Uniswap Labs is prepared to challenge the SEC’s actions, which it perceives as politically motivated, and is ready to take the legal battle to the Supreme Court if necessary.

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