Uniswap Fires Back: Warns SEC Against Broad Crypto Exchange Definition

Uniswap Labs is challenging the US Securities and Exchange Commission’s (SEC) proposed rulemaking efforts that would expand the definition of a crypto ‘exchange’ under US securities laws to include decentralized finance (DeFi) platforms. The challenge is framed within a letter to the SEC, bolstered by recent Supreme Court decisions that could influence the interpretation and enforceability of such regulatory expansions.

Uniswap Takes On SEC

Katherine Minarik, Chief Legal Officer of Uniswap Labs, revealed the company’s step in a post on X, citing the US Supreme Court’s recent judgment which rejects the application of Chevron deference in federal agency rulemaking. “For better or worse, the Supreme Court has rejected Chevron deference. The SEC’s proposal was flawed even with that deference — and it’s all the more so under today’s standard,” Minarik stated.

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 Chevron deference historically allowed courts to defer to a federal agency’s interpretation of an ambiguous statute within its jurisdiction. The landmark decision in the case of Loper Bright Enterprises, et al. v. Raimondo ruled that federal agencies must adhere more strictly to the statutory text, which has implications for the SEC’s current enforcement actions against the entire crypto industry.

In the letter, Uniswap Labs details its position against the SEC’s proposal to amend the definition of a crypto “exchange” as outlined in the Securities Exchange Act of 1934. This Act currently defines an exchange as “a marketplace or facilities for bringing together purchasers and sellers of securities.” The SEC’s proposed changes seek to extend this definition to include not just traditional securities trading platforms but also decentralized protocols like Uniswap.

The company’s submission expresses a strong legal stance that the SEC’s broader definition is unsupported by the statutory language of the Exchange Act. The letter argues that expanding the definition to include decentralized networks and technologies goes beyond the scope of the Act as it stands and would likely face legal challenges based on the recent Supreme Court decision. According to Minarik, this could lead to “an unlawful rule” that would waste both the Commission’s and the industry’s resources.

The letter further emphasizes the potential legal repercussions by citing two recent court cases: SEC vs. Binance Holdings and SEC vs. Coinbase. In both cases, federal courts expressed skepticism about the SEC’s approach to regulating the entire crypto industry through enforcement actions rather than clear, established rules.

These cases, according to Uniswap Labs, illustrate the judicial pushback against applying traditional securities laws to the decentralized aspects of the crypto market, which could indicate the likely reception of the SEC’s proposed rule changes in the courts.

Uniswap’s correspondence also suggests that the SEC should consider the impact of the Loper Bright decision and reopen the comment period for its proposal. This would allow for additional industry input considering the changed legal landscape post-decision.

At press time, UNI traded at $8.24.