Wells Notice served.

The SEC has done it again with another blatant lawsuit.
This time targeting decentralized exchange Uniswap on Ethereum.

This lawsuit is interesting in particular because of how amazingly weak the SEC's case is implied to be across the board. It's almost as if they have absolutely no intention of winning and just want to delay and obstruct the progress of Ethereum. You never know... maybe that actually is the goal.

Ethereum and the Ethereum Foundation have been getting scrutiny over the switch to the proof-of-stake Merge and the ability to earn yield from the token. As is consistent with the SEC's incessant need to attack crypto as of late: offering yield seems to be a big no-no on their list despite where the yield comes from (in this case it comes from literally running infrastructure). We are seeing this ideology play out first-hand with the Coinbase lawsuit.

Is it fair to scrutinize the Merge?

Yes, we've all done so because the Foundation's premine is a problem. They went from a governance model under miner's control to a governance model of who owns the most stake. That's a problem when a premine exists, as we are well versed in on a deep and personal level.

The same classic conspiracy theories are going to exist regardless of the truth.

1. The SEC wants to hobble Ethereum because it competes with BTC.
2. The SEC wants to temporarily delay Ethereum and create artificial entrance liquidity for Blackrock to launch their ETF.
3. The SEC is a captured regulator that does the bidding of Big Banks.
4. Etc: choose your poison.
   We tend to just pick the explanation that suits the current narrative.

A couple of different angles.

Certainly there is an argument to be made that Uniswap is centralized. After all if we agree that Ethereum itself is centralized and Uniswap is built atop Ethereum... doesn't it inherit all that centralization? However it is a pretty important distinction to note that it's not really Uniswap's fault that the Ethereum Foundation has too much power over the network. They can't be held responsible for that.

https://twitter.com/Uniswap/status/1778127813138071904

- Uniswap

This is the latest political effort to target even the best actors in crypto like Uniswap and Coinbase

All Uniswap products and the Uniswap Protocol are unaffected

"All Uniswap products unaffected."

That is a key point to be making in the face of this lawsuit. Even if the company that built Uniswap gets completely and utterly destroyed the code remains. The SEC has absolutely no power over any of this but they continue to flex like they do, perpetually signaling ulterior motive as a bad-actor. Simply the fact that Uniswap code would continue to run unabated in spite of the company's existence is already proof that the SEC is way out of line.

Despite SEC rhetoric that "most" tokens are securities, the reality is that tokens are just a digital file format

The vast majority of tokens traded on Uniswap are definitively not securities, just like most paper is not stock certificates

Here we see Uniswap Labs parroting my exact same sentiment on the matter. I've brought this up half a dozen times now over the years. A security is a very specific thing. Basically no cryptocurrencies are securities by definition.

Howie Test

1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To be derived by others.

It is essentially impossible for a crypto currency to be a security because it can't be a common enterprise. Like many legal words a "common enterprise" is exactly the opposite of what it sounds like. "Common enterprise" and "to be derived by others" go hand in hand. It means the investor has no real ownership over the underlying product nor do they have the ability to make the investment more profitable with their own labor.

Obviously a common enterprise is the opposite of all crypto.

Nobody owns the code. There is no intellectual property. Anything can be cloned and forked by anyone. This alone makes basically every crypto not a security by definition. The overemphasis on premined tokens is a misnomer and needlessly confuses the issue.

Tokens traded on secondary markets like Uniswap are not investment contracts

And the Uniswap Protocol itself is a decentralized, autonomous set of smart contracts that run without any organization, individual, or entity behind them

Not a securities exchange

The reason why the SEC's case is so weak in this particular case is that Uniswap has already won a lawsuit that set's favorable precedent. They were sued in a class-action lawsuit that tried to make them culpable for many of the scam tokens that were listed. They won; because obviously. They have no control over any of that. Now the SEC thinks they can move in and make the same argument that this is a centrally controlled exchange? Never gonna happen.

This distinction was critical in resolving a class-action suit filed against Uniswap Labs last year that claimed the company was responsible for traders who had been scammed. In that case, the plaintiffs argued that Adams had built the equivalent of a dangerous self-driving car that was running amok.

Uniswap Labs took up the self-driving car metaphor as well, but argued that the technology it had built was neutral—and that whether individuals used it for bad or for good was beyond its control. In a sophisticated ruling that described the nuances of DeFi in detail, a federal judge sided cleanly with Uniswap Labs, handling the DeFi sector a major victory.

https://twitter.com/ammori/status/1778128325996675577

- ammori

4/ The Uniswap Protocol, web app, and wallet don't meet the legal definitions of securities exchange or broker

Just weeks ago, the judge in SEC v. Coinbase dismissed the claim that crypto wallets were brokers – even if the tokens at issue were securities.

Here we see even more precedence set by the ongoing Coinbase lawsuit. The SEC is absolutely blundering at every opportunity. They would of had a better case if they just stuck to the UNI token distribution and the yield provided, but they are going full YOLO and trying to say that Uniswap itself is an unregulated exchange that trades unregulated securities. It's actually bonkers. They can't win.

The real question is: do they know they can't win and are doing it anyway? Or are they just completely incompetent? The judges on these cases are never amused. Rather they are downright verbally baffled by the three-letter agency's actions. The SEC is losing all credibility from the judiciary branch.

even if the tokens at issue were securities.

This is a VERY important detail. The SEC can't even claim that this or that token is a security for all the reasons I've already gone over. All they can do is claim that the SALE of a premined token was an investment contract. Once those tokens are already sold and out in the wild on the secondary market they can no longer be deemed securities even by the SEC's own broken logic.

SEC moves to sue Uniswap in bid to hobble fast-growing DeFi sector

But based on the agency’s recent lawsuits against high-profile crypto firms like Coinbase, the agency is likely to claim the firm illegally offered unregistered securities to the public or that it failed to register as a broker or an exchange.

It's important to note here that the only piece of real information available is the Wells Notice itself, which as far as I know has not been leaked. There's a lot of speculation going on as to what this document actually says, but it is relatively safe to say that Uniswap and their lawyers have read it and are relaying the correct interpretation.

What is a Wells notice, explained

The warning came in the form of a so-called Wells Notice, which the SEC sends to a company prior to launching a formal lawsuit and which provides it a final opportunity to rebut any allegations. In this case, that process is likely to prove little more than a formality as the agency has reportedly been investigating Uniswap for some time, and is in the midst of a sweeping crackdown on the crypto industry.

Indeed it is quite the formality.

We all know that no matter how Uniswap responds to these allegations the SEC will continue their assault regardless of the truth or even basic common sense. They have never backed off even when it would have been appropriate, and we have no reason to assume that is going to change in the future.

The impending Uniswap lawsuit comes at a time when the crypto industry has loudly complained the SEC has been operating in bad faith when it comes to the sector, pursuing enforcement actions despite clear rules while failing to account for crypto’s distinct blockchain-based technology.

SEC issues Wells notice to DeFi protocol Uniswap

If the SEC had authority over our self-custodial, non-intermediated products, it could tell us how to register them. It can’t and so it doesn’t. It has provided no clarity and no guidance — as several SEC commissioners have stated in multiple dissents.

This quote sums it up pretty well.

The SEC demands they have authority, but if they had authority they'd have authority and wouldn't need to demand it. It's quite the paradox of delusion coming from Gary Gensler within the current burst of growth coming from within the ecosystem.

The Uniswap Protocol, web app, and wallet don’t meet the legal definitions of securities exchange or broker,” said Ammori, adding that the protocol welcomes “regulations for crypto — and clear rule of law that we expect in the US — not arbitrary enforcement and continued abuse of power.

Conclusion

The SEC is way beyond their depth on this one. Not only are they guaranteed to lose this lawsuit, but this entire situation is being primed as their most needlessly embarrassing defeat in court yet. Precedent set by Ripple, Coinbase, and even Grayscale sits in their favor.

The only high-profile battle they actually won was against Binance because Binance actually did all that crazy illegal stuff they were accused of. Every other win has simply been against small fish that don't have the resources to protect themselves. It's an embarrassment of cosmic proportion. I can't even imagine how much personal reputation their lawyers are losing right about now.

Is the goal of the SEC to actually win these cases or simply delay crypto from expanding for as long as possible until their crony friends on Wall Street can position themselves accordingly? Given the SEC's actions over the last few years we have to assume they are much more interested in blatant obstruction and market manipulation than actually serving the investors they claim to protect. It's a joke at this point, and not a funny one.