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Uniswap Labs Denies Crypto Tokens Are Securities in SEC Response
(Bloomberg) — Uniswap Labs, the creator of the largest decentralized trading platform on Ethereum, said a potential enforcement action against it by the U.S. Securities and Exchange Commission has no merit because crypto tokens are not titles, but rather are simply a form of file such as PDF.
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The New York-based startup on Tuesday disputed charges that it is operating an unregistered exchange and brokerage. The response came after he announced last month that the SEC’s Enforcement Division had sent a notice to Wells, notifying Uniswap Labs that it intended to recommend legal action against it.
“The SEC’s entire case is based on the false assumption that all tokens are securities,” Marvin Ammori, chief legal officer at Uniswap Labs, said during a Zoom press conference on Tuesday. “Tokens are, in fact, simply a file format. They are a valuable file format and are not inherently securities. The SEC needs to essentially unilaterally change the definitions of exchange, broker, and investment contract to try to capture what we do.”
By suing Uniswap Labs for operating as an unregistered exchange, the SEC would be exposed to “serious risks of an adverse ruling regarding its authority over crypto tokens and precedents that limit the scope of the definition of ‘exchange’ in ways that undermine the pending SEC rulemaking.” in that area,” Uniswap Labs wrote in a 40-page response to the SEC on Tuesday.
“We will have a lawsuit if necessary,” Ammori said. “And if we fight, we will win.”
SEC Chairman Gary Gensler has long said that decentralized exchanges are not truly decentralized and fall under the regulator’s purview. Gensler also said that many digital assets are unregistered securities subject to SEC rules.
In its response, Uniswap Labs argued that UNI tokens, which are Uniswap’s governance token, are not securities because its token distributions do not meet the requirements of the Howey Test, a legal framework based on a Supreme Court ruling which defines investment contracts. He also disputed the SEC’s claim that LP tokens, a special type of token that a user gets when they put money into a pool on Uniswap that helps traders trade different tokens, are securities.
“The LP token is used as an accounting device to track what assets the user has provided to the smart contract and any fees earned on the user’s liquidity,” the company said. “In other words, LP tokens are not issued for investment purposes, but rather as accounting instruments, and are therefore not securities.”
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