- What will be the outcome of the trial?
- How does the confrontation between SEC and Uniswap threaten users?
- What other DeFi solutions could potentially interest US authorities?
The SEC’s potential lawsuit against the decentralized exchange Uniswap will become a significant precedent for the cryptocurrency market, although the agency’s possible victory in this proceeding is still highly doubtful. Experts interviewed told ForkLog about this.
What they are presenting is unclear
According to the notice received by Uniswap, the SEC found certain violations of securities laws in the company’s activities. However, specific claims have not been voiced.
“I think this is not about the regulation of decentralized financial products, but about what the DeFi product did with certain assets, most likely related to securities – stocks, bonds and others,” says Andrey Tugarin, founder of the law firm GMT Legal.
Uniswap has 30 days to respond, in which it must legally substantiate the wrongfulness of the accusations. The exchange team has already announced that they are “ready for battle.”
The SEC’s interest in Uniswap could be considered a kind of compliment to the developers, if we omit the negative effect of such “attention,” notes Nikita Zuborev, an analyst at the BestChange aggregator.
“Uniswap, after $2 trillion in trading volume, has finally become a large enough and serious exchange to attract the attention of the US regulator and invest investigative resources on it,” he explains.
The expert believes that the Commission continues the trend towards the deepest possible regulation of the market, as far as current US laws allow, since in reality it has rather limited powers. Therefore, if the court is rational and consistent, then no DEX should be subject to regulation.
“Formally, this is an over-the-counter segment, because despite the interface like an exchange, the platform itself does not act as an intermediary; transactions are carried out by decentralized smart contracts,” notes Zuborev.
According to the founder and acting CEO of CeDeFiAi, Tony B, in this case the SEC is once again showing absolute incompetence. Instead of forming clear guidelines for regulating the industry, it “knocks money out” of established innovative products, and instead of “protecting investors”, it tries to cause panic in the markets, leading to the opposite effect.
“Retail market shocks are often the work of the Commission itself, and one might think that [глава SEC] Gary Gensler has been “buying from the bottom” all this time,” says the expert.
In the short term, this confrontation does not threaten ordinary users of the exchange. Tony B reminds that the SEC lawsuit has not yet been filed, and the lawsuits themselves, in the absence of guidelines, have been going on for years.
“Most likely, they will come to a fine and a compromise if no one thinks of playing Ripple,” he concluded.
Nikita Zuborev calls the case “a deliberately lost case” due to the inconsistency of the accusations, about which Uniswap lawyers have already provided comprehensive explanations.
“What adds optimism is the fact that last year the site already won a victory in court against a group of defrauded investors. The essence of the proceedings was different then, but the theses used by the judge (the main one was that the platform is not related to the issuers of tokens) could strengthen the position of the defendant,” the analyst emphasized.
However, he points out that the language will be important if the SEC takes the case to court:
“Here we are dealing with case law and any clause can be used in the future against other projects. In particular, it is important how exactly the judge will call cryptocurrencies, which the SEC considers unregistered securities. For now, this is the main area for various speculations around crypto projects – Securities vs. Commodities”.
Cryptocurrencies are not securities
Indefibank CEO Sergei Mendeleev did not see “nothing new” in the SEC’s claims. According to him, the department clings to any process in which illegal trading of securities is allegedly taking place, and whether this happens in a decentralized manner or not is the tenth question.
“Of course, cryptocurrencies are not securities of any kind, but they don’t have to catch scammers from Wall Street, where they can accidentally expose themselves. But KPIs must be met, so we came up with some entertainment,” said the expert.
Liquidity pools and other similar instruments could potentially be at risk, since they meet all the parameters of the Howey test, Nikita Zuborev believes.
“Simple PoS tokens are not securities for the reason that not every purchased token brings profit, but only those that will be frozen in staking. With a more rational approach, they could turn their attention to this mechanism and make claims against the organizer of staking pools and/or stakers, but not against platforms for purchasing digital goods,” he noted.
The analyst found it difficult to predict whether the SEC will follow the path of common sense or continue to “shoot at sparrows from a cannon.” Depending on the chosen strategy, different DeFi projects will be at risk.
“If they involve experts, then all staking/farming platforms will suffer. If claims continue to be thrown around at random, then those at risk are centralized exchanges that had the temerity to work with US citizens (this is, in fact, all exchanges older than six years – from the era of trading without KYC), as well as simply large market players – who knows where they will be led by erroneous logic – even utility-NFTs have risks,” Zuborev listed.
Product manager and marketer of DeFi products Yulia Palamarchuk suggests that platforms with the largest total locked volume of funds (TVL), such as Compound, AAVE and 1inch, may be of particular interest to the SEC.
DeFi cannot be regulated
Blum co-founder Gleb Kostarev is convinced that an attempt to regulate the decentralized finance industry is obviously doomed to failure.
“It is impossible to prohibit someone from launching smart contracts that allow you to automatically exchange one asset for another. I doubt that the SEC will be able to win this case,” he said.
On the other hand, this case is a clear signal for the industry: regulators will closely monitor the field of decentralized finance.
“The arrival of regulation in this industry, first of all, will concern the introduction of mandatory KYC at the level of exchanges or wallets in the coming years, and this, most likely, cannot be avoided,” says Kostarev.
Tony B predicts that sooner or later, landing protocols will also come under attack from regulators, as they are effective tax evasion loopholes.
In turn, Yulia Palamarchuk recalled that the SEC’s area of influence is limited to the territory of the United States – their regulation primarily concerns transactions taking place within this jurisdiction. Therefore, for users of DeFi products who are not American citizens, the risks are minimal.
“Even attempts to block access of US citizens by IP addresses, thanks to VPN services, may be ineffective,” she pointed out.
Overall, the expert is convinced that regulating DeFi will require a new approach to the globalized financial system, and at the moment it seems to be a difficult task.
Previously, the US Treasury called for the adoption of legislation expanding the scope of the department’s activities in the “digital asset ecosystem”, as well as rules that solve jurisdictional problems for regulating foreign companies in the industry.
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2024-04-11 15:15:09
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