Uniswap Labs has formally petitioned the U. S. Securities and Exchange Commission (SEC) to revisit the proposed rule changes it has made to the Securities Exchange Act of 1934 with the aim of broadening the definition of an “exchange”.
Uniswap claims the proposed changes would trespass the SEC authority over the DeFi platforms and are likely to be voided by the Supreme Court based on the recent decision.
Uniswap Labs Urges SEC to Rethink DeFi Rule
According to Coinbase CLO Katherine Minarik, Uniswap Labs’ main argument is based on the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo that changed the legal framework. This decision overrules the deference accorded to Chevron, which had enabled federal agencies to implement uncertain statutory provisions.
Uniswap Labs claims that without this deference the SEC’s interpretation of the term ‘exchange’ is unbounded and unsupported. They suggest that the definition in the statute does not capture DeFi protocols and that the SEC’s amendments will most probably be dismissed by courts. Uniswap Labs had been issued a Wells Notice by the SEC in April, meaning that the regulator plans to take legal action against the company.
Today @Uniswap Labs urged the SEC not to proceed with its proposed rulemaking that would dramatically and improperly expand the definition of an ‘exchange’ to include DeFi and more. 1/x
— Katherine Minarik (@MinarikLaw) July 9, 2024
The notice alleged that Uniswap was conducting securities trading without registration as an exchange and as a broker. Uniswap Labs has, however, defended itself stating that its protocol does not qualify to be termed as an exchange and rather it is a passive technology. The company stated that the SEC would have to change the current definition of an exchange to incorporate their operations.
Call for Reopened Comment Period
Following the Supreme Court ruling, Uniswap Labs has urged the SEC to reconsider the proposed amendments and extend the comment period. They assert that legal environment has changed significantly to require new participation of the public. The original comments were made under a legal standard that assumed Chevron deference, which is no longer valid.
For this reason, Uniswap Labs has stressed the need for a review to ensure that any new laws are consistent with the current legal framework and do not exceed the limits set by Congress.
At the same time, Uniswap Labs also argued that the proposed amendments would hamper innovation and lead to legal ambiguities. They noted that the amendments might negatively impact the DeFi industry that is responsible for trillions of dollars in transactions.
The company also points to previous court rulings that have demonstrated reluctance to enforce securities laws against decentralized crypto services, citing SEC v. Coinbase, Inc. and SEC v. Binance Holdings. They counter that the SEC’s mode of regulation through enforcement measures rather than definitive rules is prone to produce different legal outcomes and regulatory ambiguity.
Uniswap’s Commitment to Legal Compliance
However, Uniswap Labs is not willing to surrender its claim and the DeFi ecosystem to regulatory pressures. Earlier this year, Uniswap founder Hayden Adams had stated that they do operate legally and that the SEC’s approach to regulation is problematic.
According to Adams, the SEC’s decision to target relatively big players such as Uniswap and Coinbase without checking on the fraudsters harms the market.
Uniswap Labs is willing to challenge the SEC’s actions, which it regards as political, and is ready to continue the legal battle all the way to the Supreme Court.
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