Uniswap Labs is challenging proposed rulemaking 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 framed in a letter to the SEC, backed by recent Supreme Court decisions that could impact the interpretation and enforceability of such regulatory expansions.
Uniswap Takes on SEC
Uniswap Labs’ chief legal officer, Catherine Minarik, revealed the company’s move in a blog post , citing the recent U.S. Supreme Court ruling that rejected Chevron deference in federal agency rulemaking. “For better or worse, the Supreme Court refused to defer to Chevron. The SEC’s proposal was flawed even with that deference — even more so by today’s standards,” Minarik said.
today @uniswap SEC Labs urged not to move forward with proposed rules that would vastly and inappropriately expand the definition of “exchange” to include DeFi and more. 1/x
– Catherine Minarik (@MinarikLaw) July 9, 2024
Chevron’s deference has historically allowed courts to defer to a federal agency’s interpretation of an ambiguous law within its jurisdiction. The landmark decision in Loper Bright Enterprises, et al. v. Raimondo held that federal agencies must adhere more strictly to the statute, which has implications for the SEC’s current enforcement actions against the entire crypto industry.
In the letter, Uniswap Labs explains its position against the SEC’s proposal to amend the definition of a cryptocurrency “exchange” as set forth 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 changes seek to expand this definition to include not only traditional securities trading platforms but also decentralized protocols like Uniswap.
The company’s submission makes a strong legal case that the broader definition offered by the SEC is not supported by the statutory text of the Exchange Act. The letter claims that expanding the definition to include decentralized networks and technologies goes beyond the scope of the law as it stands and is likely to face legal challenges based on a recent Supreme Court decision. According to Minarik, this could result in an “unlawful rule” that would waste resources for the SEC and the industry.
The letter also underscores the potential legal ramifications by citing two recent court cases: SEC v. Binance Holdings and SEC v. 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.
According to Uniswap Labs, these cases illustrate judicial resistance to applying traditional securities laws to the decentralized aspects of the cryptocurrency market, which could point to the potential reception of the SEC’s proposed changes in the courts.
Uniswap’s correspondence also suggests that the SEC should consider the impact of the Loper Bright ruling and reopen the comment period on its proposal. This would allow for additional industry input given the changing legal landscape following the ruling.
At the time of publication, UNI stock was trading at $8.24.
Featured image from Uniswap, chart from TradingView.com