Uniswap Labs is challenging proposed regulatory efforts by the U.S. Securities and Exchange Commission (SEC) that would expand the definition of a cryptocurrency “exchange” under U.S. securities laws to include decentralized finance (DeFi) platforms. The challenge is made in a letter to the SEC, bolstered by recent Supreme Court decisions that could influence the interpretation and enforceability of these regulatory expansions.
Uniswap Takes on SEC
Katherine Minarik, Uniswap Labs’ chief legal officer, revealed the company’s move in a post on X, citing the recent U.S. Supreme Court ruling that rejected Chevron’s application of deference in federal agency rulemaking. “For better or worse, the Supreme Court rejected Deference to Chevron“The SEC’s proposal was wrong even with that deference – and it is even more wrong by today’s standard,” Minarik said.
Today @Uniswap Labs urged the SEC not to move forward with its proposed rulemaking that would dramatically and inappropriately expand the definition of an “exchange” to include DeFi and more.
— Katherine Minarik (@MinarikLaw) July 9, 2024
The deference granted to Chevron has historically allowed courts to defer to a federal agency’s interpretation of an ambiguous statute within its jurisdiction. The landmark decision in Loper Bright Enterprises, et al. v. Raimondo held that federal agencies must adhere more strictly to the text of the statute, which has implications for the SEC’s current enforcement actions against the crypto industry as a whole.
In the letter, Uniswap Labs details its position against the SEC’s proposal to amend the definition of a cryptocurrency “exchange” as defined in the Securities Exchange Act of 1934. The act currently defines an exchange as “a market or facility for bringing together buyers and sellers of securities.” The SEC’s proposed amendments seek to expand that definition to include not only traditional securities trading platforms, but also decentralized protocols like Uniswap.
The company’s letter expresses a strong legal position that the SEC’s broader definition is not supported by the statutory language of the Exchange Act. The letter argues that expanding the definition to include decentralized networks and technologies exceeds the scope of the law as it currently stands and would likely face legal challenges based on the Supreme Court’s recent decision. According to Minarik, this could lead to “an unlawful rule” that would waste both the Commission’s and industry’s resources.
The letter also highlights the potential legal implications by citing two recent court cases: SEC vs. Binance Holdings and SEC vs. Coinbase. In both cases, federal courts have 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 resistance to applying traditional securities laws to the decentralized aspects of the cryptocurrency 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 on its proposal. This would allow for additional industry input given the changing legal landscape following the decision.
At press time, UNI was trading at $8.24.
Featured image from Uniswap, chart from TradingView.com
