SEC takes Uniswap team’s operation on DeFi Will usher in a new era of supervision?

Currently, U.S. securities regulators are investigating the development companies behind the largest decentralized cryptocurrency exchange (DEX).

Last Friday, the “Wall Street Journal” first reported that the US Securities and Exchange Commission (SEC) is conducting a civil investigation against Uniswap Labs. According to the Wall Street Journal, “informed sources” stated that the executive lawyer is seeking information on how to use Uniswap and how the team behind it, Uniswap Labs, will market the platform .

A representative of Uniswap Labs told the Wall Street Journal that the company is “committed to complying with the laws and regulations that govern our industry and provides information to regulators to help them conduct any investigations.”

More broadly, this news shows that the SEC’s recent attitude towards DeFi (decentralized finance) is transforming from speech to action, which heralds a new era of supervision .

Letter from the supervisory authority

Gabriel Shapiro, General Counsel of Delphi Labs, said that lawyers focused on cryptocurrencies have been waiting for the arrival of DeFi regulatory actions. He said:

“As for how the DeFi project began to receive letters from the SEC and inquiries from other regulatory agencies, lawyers in the field have realized this and have been talking about it for about a month, and this is becoming more and more public.”

According to the Wall Street Journal, in addition to the investigation of Uniswap, the SEC’s law enforcement department recently sent letters to a number of DeFi startups as part of the review of cryptocurrency lending services .

Sarah Brennan, a lawyer specializing in blockchain at Harter Secrest & Emery LLP, said that these new developments may mark the beginning of a larger enforcement theme in the new era of the SEC. Brennan said: “My feeling is that this is part of a big sweep, similar to what happened in 1COs in 2018.”

DeFi is getting bigger

At present, the regulator has not made clear regulations on the DeFi (decentralized finance) field and how to supervise DEXs (decentralized exchanges).

Last year, SEC Commissioner Hester Peirce said that she expects DeFi to “challenge” the agency’s regulatory approach, but it is unclear when the field will develop enough to attract the attention of regulators. Peirce said at the time:

“This field has developed a lot, but it is still relative. So if the field develops bigger, I think you will see more regulatory attention, but that does not mean that the field is not attracting any regulatory attention now. “

Peirce made the above remarks in September 2020, when the trading volume of DEX broke the record, exceeding 30 billion U.S. dollars. By May of this year, the trading volume of DEXs reached nearly 163 billion U.S. dollars. In short, DeFi is getting bigger and bigger, and Uniswap is at the forefront .

SEC takes Uniswap team's operation on DeFi Will usher in a new era of supervision?

Above: The monthly trading volume trend of major DEXs (the trading volume data for September this year is as of September 7). Source: The Block

Regulatory signal

With the continuous development of DeFi, Gary Gensler was promoted to chairman of the SEC. As a former lecturer of the Massachusetts Institute of Technology (MIT) blockchain course, many people think that Gary Gensler is a more knowledgeable regulator, and may be supportive of emerging technologies-but it also means that he knows where Activities that lack investor protection occur .

SEC takes Uniswap team's operation on DeFi Will usher in a new era of supervision?

Gary Gensler, Chairman of the US SEC

Gary Gensler has hinted that DeFi may be one of his priorities . Early last month, he delivered a speech at the Aspen Security Forum (Aspen Security Forum), said encryption monetary lack of investor protection , and in this area known as the ” Wild West ” (the Wild West). He specifically for encryption currency exchange, namely whether it is CEXs (centralized exchange) or DEXs (to the center of the exchange), if these exchanges can be seen as support for security tokens (Tokens) , it may involve securities Method .

Subsequently, the SEC announced its first settlement agreement in the DeFi currency market : Previously, the SEC accused Gregory Keough, Derek Acree and their company blockchain Credit Partners to pass DeFi currency between February 2020 and February 2021. The market issues and sells securities tokens in an unregistered manner . The SEC alleges that they sold more than $31 million in mTokens and DMG tokens through the DeFi currency market. The settlement agreement requires Gregory Keough and Derek Acree to pay investors US$12,849,354 and impose a fine of US$150,000 each.

A few days after the settlement was reached, SEC Chairman Gary Gensler called for the regulation of DeFi in an interview with The Wall Street Journal . He said those rewards participants valuable tokens or similar incentives of DeFi project may still be subject to regulation , because the projects are often behind a group of core developers .

Attorney Sarah Brennan said that the DeFi industry should take what Gary Gensler said seriously , and Uniswap’s investigation report showed that he was genuine . Brennan said:

“According to recent statements, especially Gensler’s remarks before the Aspen Security Forum, I do think this is a big deal. We should expect that the SEC under Gensler will be a tough regulator, both in terms of influence , Still in law enforcement.”

Early stage

But as Jake Chervinsky, general counsel of the DeFi lending market Compound, pointed out in a tweet: “The investigation (of Uniswap) does not imply an allegation of misconduct, it is just the way the SEC collects information .”

SEC takes Uniswap team's operation on DeFi Will usher in a new era of supervision?

The investigation of Uniswap currently only requires the developers of Uniswap Labs to provide information voluntarily, without issuing a subpoena. Although this investigation comes from law enforcement, it is not yet a law enforcement action against DEX .

Chervinsky said on Twitter: “(For now) you shouldn’t be too worried.”

Gabriel Shapiro, general counsel of Delphi Labs, also said that any action may take a long time . The SEC’s search for Uniswap-related information means that the next dialogue is about how the DeFi field works, and then whether there is any misconduct and further settlement issues.

If the SEC decides to take coercive measures, settlement negotiations will take a long time. It may take several months to reach a resolution that will set the tone for the investigation of other DeFi projects.

The SEC may also mainly want to keep up with this rapidly growing field by soliciting information from Uniswap, one of the largest players in the DeFi field.

However, even if the SEC does not take enforcement actions after the investigation, the SEC’s investigation will cost the DeFi project. As ShapeShift founder Erik Voorhees pointed out on Twitter:

“It should be emphasized that when the regulator’collects information’, it means millions of dollars in legal costs and millions of dollars in targeted productivity losses. If no violations are found, the regulator will not compensate for their actions. And will not even apologize.”

SEC takes Uniswap team's operation on DeFi Will usher in a new era of supervision?


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