Uniswap Labs, the developer behind the popular decentralized cryptocurrency exchange Uniswap, recently received a Wells notice from the United States Securities and Exchange Commission (SEC). This notice indicates that the SEC is planning to take enforcement action against the company. The SEC’s investigation reportedly focused on Uniswap’s marketing and investor services. The situation raises important questions about the legal responsibilities of open-source developers and the classification of code as free speech.
Some argue that Uniswap Labs, as a publisher of open-source software, falls outside the jurisdiction of the SEC. They claim that since the software is open-source and freely available, the developers should not be held liable for any misuse of the platform. However, this argument has already been tested in court. In 2022, a class-action lawsuit was brought against Uniswap Labs by six plaintiffs who claimed that the company was responsible for their losses to scam tokens traded on the Uniswap platform. The court ruled in favor of Uniswap Labs, stating that developers should not be held liable for third-party misuse of their code.
This ruling does not mean that all developers are immune from legal consequences. The case of Tornado Cash, a crypto mixer, demonstrates that regulators can target developers of open-source software for facilitating criminal activity. One of Tornado Cash’s developers spent time in jail on suspicion of money laundering, while another is facing charges related to money transmission and sanctions evasion. These cases have raised concerns among blockchain developers who fear being blamed for the actions of third parties using their technology for illicit purposes.
To protect themselves, some experts suggest that developers should make their code immutable, meaning it cannot be changed once deployed. Peter Van Valkenburgh, director of research at Coin Center, argues that this can help developers avoid liability for scams and illicit activities on platforms built with their code. However, others disagree and argue that mutable code, which can be controlled and updated by developers, can provide a better defense mechanism in case of wrongdoing.
Regardless of whether the code is mutable or immutable, developers may still face legal persecution based on their intentions and desired outcomes when coding. Gideon Greenspan, founder of Coin Sciences, emphasizes the importance of considering whether there is malicious intent behind the code. He draws attention to the Post Office scandal in the UK, where faulty software led to false accusations of theft and fraud against post office operators. While the perception of intention is subjective, it can play a crucial role in legal proceedings.
In light of these challenges, some developers may choose to remain anonymous, just as Satoshi Nakamoto did when creating Bitcoin. By doing so, they can avoid being held accountable for their actions. However, this approach is not without drawbacks, as it may not represent a positive trend and can raise concerns about accountability.
The exact nature of the SEC’s action against Uniswap Labs is still unclear, as the SEC does not comment on ongoing investigations. However, the threat of legal consequences can have a chilling effect on developers who are uncertain about how their code could be used. Nonetheless, many in the industry remain optimistic and believe that the excitement surrounding the technology outweighs the fear of persecution.