The recent action taken by the United States Securities and Exchange Commission (SEC) against decentralized crypto exchange Uniswap goes against its own policy guidelines, according to Adam Cochran of Cinneamhain Ventures. Cochran, in a legal analysis on X (formerly Twitter), pointed out that the SEC’s previous decisions on the definition of an exchange contradict its stance in Uniswap’s potential legal battle.
Cochran highlighted that the SEC had previously issued No-Action Letters in 1986, 1991, and 1997 to provide guidance on routing and matching trades electronically. These entities were concerned that such actions would classify them as an “exchange.” Cochran argued that these letters set a precedent that contradicts the SEC’s current position.
Furthermore, Cochran mentioned that the SEC’s guidance in letters from 1989 and 1990 stated that interfaces that display and communicate with an exchange are not classified as exchanges themselves. These interfaces were not considered exchanges because settlement and payment occurred elsewhere, even though they brought buyers and sellers together to exchange securities.
Cochran also pointed out that in 1998, the SEC declared the matter settled and stopped responding to No-Action Letter requests. Additionally, he highlighted that connecting buyers and sellers does not constitute an exchange, as per the SEC’s guidance to companies in 1979, 1996, and 1999.
Another important aspect of Cochran’s analysis relates to asset listing. In 1998, the SEC determined that having an electronic system for common stocks not listed on an existing exchange does not qualify as an exchange, regardless of any fees charged.
Uniswap, known for enabling automated token exchanges on the Ethereum blockchain without traditional intermediaries, has come under regulatory scrutiny since 2021. Recently, the platform received a Wells notice from the SEC, which signifies that the regulator’s staff intends to recommend enforcement action.
Uniswap Labs, the main developer of Uniswap, has stated that it is only responsible for developing the front-end portal of the app. According to the company, the front-end is separate from the autonomous code of the Uniswap protocol, which is made available for public use.
Cochran’s analysis supports Uniswap Labs’ claims. He emphasized that the front-end and smart contract are distinct elements in a crypto trade, as trades can be executed on the smart contract through other interfaces or even directly through a node.
In related news, the CEO of Trezor, a popular hardware wallet for cryptocurrencies, warned that the introduction of Bitcoin exchange-traded funds (ETFs) on Coinbase could make it a target for hackers and governments. The CEO expressed concerns about the centralized nature of Coinbase and the potential security risks associated with holding large amounts of Bitcoin.