Uniswap Case Dismissed
On Aug. 30, the United States District Court for the Southern District of New York handed the crypto industry a win by dismissing a suit against decentralized exchange Uniswap.
The lawsuit was initiated by six individuals who, between December 2020 and March 2022, purchased what they asserted were scam tokens on Uniswap. They contended losses arose from liquidity pools manipulated by Uniswap’s smart contracts.
Stretching Securities Laws? Not This Time.
Filed in April 2022, the suit sought compensation based on the 1933 Securities Act – a common basis the SEC utilizes against crypto entities. However, Judge Katherine Polk Failla, who is also presiding over the SEC vs. Coinbase case, clarified that neither Uniswap nor the plaintiffs were privy to the scammers’ identities behind the counterfeit tokens.
More notably, the judge underlined Ethereum’s status as a commodity rather than a security, noting:
“The Court declines to stretch the federal securities laws to cover the conduct alleged, and concludes that Plaintiffs’ concerns are better addressed to Congress than to this Court.”
Industry Reactions
This decision, highlighting a profound grasp of the decentralized finance (DeFi) landscape, spurred significant reactions. Stephen Palley of Brown Rudnick stated:
“This isn’t a case about products liability or negligence, but touches on some of the same issues: foreseeability of harm, responsibility for third-party misuse, and third-party damage.”
Bill Hughes, a ConsenSys attorney, also weighed in:
“This is big. I’m still digesting the decision, but this more directly impacts the application of current securities laws to DeFi than the Ripple or TerraForm Labs cases.”
He further pointed out the distinction between platform creation and responsibility for misuse, emphasizing that Uniswap’s creation of a platform for potential scams doesn’t render them liable under US securities laws.
UNI Price Reaction
While one might expect a positive market reaction following such news, the opposite transpired. Uniswap’s token price (UNI) fell by another 3%, trading at $4.62 during this report. The decline only adds to its significant drop from its previous all-time high in May 2021.
