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Conclusion

  • Two class-action lawsuits allege that Uniswap offered unregistered securities.
  • It is alleged in the complaints that it failed to take the required efforts to prohibit fraudsters and implement identification checks.
  • Could this be another SEC-monitored exchange?

Currently, two lawsuits against the DEX have been filed in the United States, including by venture capital companies A16z and Paradigm.

The first case, filed on April 4 by cryptocurrency investor Nessa Rixley (North Carolina), claims that she sustained "severe losses" as a result of her $10,400 investment in low-cap digital assets such as EthereumMax, Matrix Samurai, and Rocket Bunny between May and July of last year.

She alleges that Uniswap failed to conduct identification checks and apply securities limitations on "fraudsters" who use the platform to advertise fraudulent-looking digital coins for the purpose of committing mass fraud. Barton LLP and Kim & Serritella LLP are representing Risley.

The complaint also names Hayden Adams, the company's creator, and supporters including Andreessen Horowitz, Paradigm, Union Square Ventures, and AH Capital Management. According to the attorneys, the funders were complicit in Uniswap's "failure to register as an exchange or broker-dealer."

Although they have not yet certified a class, the goal is to recruit further investors who lost money on Uniswap. It noted that the protocol failed to communicate the risks linked with the securities' associated investments.

Did Uniswap permit "rug pulls"?

Additionally, the class action alleges that Uniswap's platform permitted "rug pulls" and "pump and dumps." It attributes fraud to the decentralized exchange's pricing structure, which compensates liquidity providers for each deal.

This, along with the fact that Uniswap retains a share of developer fees, it argued, creates a conflict of interest that has transformed the DEX into a quiet enabler of fraud.

The document's conclusion goes as follows: Defendants have profited handsomely from this unlawful activity, as have the Issuers to whom Uniswap paid hidden and exorbitant fees. Meanwhile, unsuspecting users on the other side of these fraudulent transactions were left holding the bag.

On Twitter, there have been a variety of reactions to the case. On the one hand, some feel the lawsuit simply restates the obvious regarding shitcoins traded on decentralized exchanges. However, some feel the case is justified in part.

The SEC continues to pursue cryptocurrency businesses.

The Securities and Exchange Commission (SEC) of the United States started an inquiry into Uniswap in September, looking into how the platform was being utilized and promoted.

In 2020, the SEC sued Ripple and its creators for allegedly selling unregistered securities in the form of XRP. The exchange is presently arguing in court with Ripple that XRP is a cryptocurrency and not a "security" under the Howie case.

In August 2021, the regulatory watchdog sued the creator of DeFi, Blockchain Credit Partners, and its management, alleging that the two tokens they sold were "securities" that should have been registered.

Gurbir Grewal, SEC enforcement director, remarked to Blockchain Credit Partners:

Full and honest disclosure remains the cornerstone of our securities laws — no matter what technologies are used to offer and sell those securities.