TLDR
- Uniswap Labs is urging the SEC to reconsider its proposed changes to DeFi regulations.
- The company cites a recent Supreme Court decision (Loper Bright Enterprises v. Raimondo) that overturned Chevron deference.
- The SEC issued a Wells notice to Uniswap in April, indicating potential legal action.
- Uniswap argues that the SEC’s proposed amendments lack clear limits and may exceed its authority.
- The company calls for reopening the public comment period on the proposed changes.
Uniswap Labs, the developer behind the popular decentralized exchange Uniswap, is pushing back against the U.S. Securities and Exchange Commission’s (SEC) efforts to expand its regulatory reach over decentralized finance (DeFi).
The company has formally requested that the SEC reconsider its proposed amendments to the Securities Exchange Act of 1934, which aim to broaden the definition of an “exchange.”
The SEC’s proposal, first introduced in April 2023, seeks to include crypto market participants in DeFi under its regulatory umbrella.
However, Uniswap Labs argues that these changes may exceed the SEC’s authority and could face significant legal challenges.
A key factor in Uniswap’s argument is the recent Supreme Court decision in the case of Loper Bright Enterprises v. Raimondo. This ruling, made on June 28, 2024, overturned the long-standing practice known as Chevron deference.
Previously, this principle allowed federal agencies considerable freedom in interpreting ambiguous laws. With the Chevron deference no longer in effect, Uniswap Labs contends that the SEC’s proposed amendments lack a solid legal foundation.
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
In a letter dated July 9, Uniswap Labs stated, “The Commission drafted the proposed amendments against a legal backdrop that no longer exists.”
The company argues that without Chevron deference, courts are not required to defer to federal agencies’ interpretations of ambiguous laws.
This change in the legal landscape, according to Uniswap, makes the SEC’s efforts to amend the definition of “exchange” likely to face and potentially fail a judicial challenge.
The conflict between Uniswap Labs and the SEC has been brewing for some time. In April, the SEC issued a Wells notice to Uniswap – a formal notification indicating the regulator’s intent to recommend enforcement action. The notice alleged that Uniswap was conducting securities trading without proper registration as an exchange and broker.
Uniswap Labs has defended itself, stating that its protocol is a passive technology and does not qualify as an exchange under current definitions.
The company argues that the SEC would need to significantly alter the existing definition of an exchange to encompass DeFi platforms like Uniswap.
Beyond the legal arguments, Uniswap Labs expresses concern about the potential impact of the proposed amendments on innovation in the DeFi industry.
The company points out that DeFi platforms handle trillions of dollars in transactions and warns that overly broad regulations could stifle growth and innovation in this rapidly evolving sector.
In light of these concerns and the changing legal landscape, Uniswap Labs is calling for the SEC to reopen the public comment period on its proposed amendments.
The company argues that the original feedback was provided under outdated legal assumptions, and new input is necessary to ensure any new regulations align with current legal frameworks.
Despite the challenges, Uniswap Labs maintains its commitment to legal compliance. The company has stated its readiness to fight what it views as politically motivated actions by the SEC, potentially taking the battle to the Supreme Court if necessary.
