Uniswap Challenges SEC’s Authority Over DeFi Following Supreme Court Ruling

TLDR

Uniswap Labs is urging the SEC to drop its proposal to regulate decentralized finance (DeFi)
The company cites the recent Supreme Court decision in Loper Bright Enterprises v. Raimondo, which overturned the Chevron deference
Uniswap argues that without Chevron deference, the SEC’s interpretation of the Exchange Act lacks legal foundation
The company claims the SEC’s proposed amendments would exceed its authority over DeFi platforms
Uniswap calls for the SEC to reopen the comment period on its proposal in light of the new legal landscape

Uniswap Labs, the developer behind the popular decentralized exchange Uniswap, is intensifying its efforts to challenge the U.S. Securities and Exchange Commission’s (SEC) attempt to regulate decentralized finance (DeFi).

In a recent letter to the SEC, Uniswap cited a landmark Supreme Court decision to argue against proposed amendments that would expand the definition of an “exchange” to include DeFi platforms.

The crux of Uniswap’s argument stems from the Supreme Court’s June 28 ruling in Loper Bright Enterprises v. Raimondo.

This decision effectively overturned the Chevron deference, a long-standing legal principle that required courts to defer to federal agencies’ interpretations of ambiguous laws.

Uniswap contends that this ruling fundamentally alters the legal landscape in which the SEC is attempting to extend its regulatory reach.

Both the SEC and the industry have better ways to spend their resources than in litigation over an unlawful rule. Our letter to the SEC is here: https://t.co/yAltMdmD3e. 3/3

— Katherine Minarik (@MinarikLaw) July 9, 2024

In its July 9 letter, Uniswap argued that the SEC’s proposed amendments to the Exchange Act of 1934 are now being made against “a legal backdrop that no longer exists.” The company asserts that without the Chevron deference, the SEC’s interpretation of the Exchange Act lacks a solid legal foundation and is unlikely to withstand judicial scrutiny.

Katherine Minarik, Chief Legal Officer at Coinbase, echoed this sentiment, explaining that the SEC’s interpretation now lacks the legal backing it previously enjoyed. Uniswap maintains that the current law does not cover DeFi platforms and that courts are likely to reject the SEC’s proposed amendments.

The timing of this challenge is significant, as it follows the SEC’s issuance of a Wells notice to Uniswap Labs in April. This formal notification indicated the SEC’s intention to recommend enforcement action against the company for allegedly trading securities without proper registration.

Uniswap has consistently defended its position, arguing that its platform is a passive technology rather than an exchange as defined by the SEC.

Uniswap’s letter goes beyond merely challenging the SEC’s legal standing. The company argues that if the Commission moves forward with its proposed amendments, it would be wasting “limited resources” on an effort that is “certain to conclude that the Commission’s interpretation of the Exchange Act stretches the statutory text too far.”

Uniswap contends that the proposed amendments have “no discernible limits” to the public, which would necessitate continued case-by-case litigation in court. This, they argue, would lead to inconsistencies and a lack of clear guidance for the industry.

In light of these concerns, Uniswap is calling on the SEC to either drop the proposed amendments entirely or, at the very least, reopen the comment period. The company argues that the public should have the opportunity to consider the implications of the recent Chevron decision when providing feedback on the proposed regulations.

The potential impact of these regulatory changes extends far beyond Uniswap. The DeFi industry, which handles trillions of dollars in transactions, could face significant challenges if the SEC’s amendments are adopted.

Uniswap and others in the industry worry that such regulations could stifle innovation and create legal ambiguities in a rapidly evolving sector.

Despite these challenges, Uniswap Labs maintains its commitment to compliance. The company has stated its readiness to “fight” the matter in court if necessary, potentially pursuing legal recourse up to the Supreme Court.

This stance reflects the broader tension between regulatory bodies and the crypto industry, as both sides grapple with how to approach the regulation of decentralized technologies.

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