The United States Securities and Exchange Commission (SEC) is facing criticism for what some are calling a contradiction in its latest action against decentralized crypto exchange Uniswap. According to Adam Cochran of Cinneamhain Ventures, the SEC’s recent move goes against years of its own policy guidelines.
In a legal analysis posted on X (formerly Twitter), Cochran pointed to previous decisions by the SEC regarding the definition of an exchange and how it applies to Uniswap’s potential legal battle. He highlighted several instances where the SEC had issued No-Action Letters to entities seeking guidance on electronic trade routing and matching.
Cochran explained that in the past, the SEC had determined that entities operating systems for routing and matching trades electronically were not considered exchanges if the execution took place on a separate system. This led to the conclusion that such systems were classified as “computer service systems” rather than exchanges.
Another point of contention raised by Cochran was the classification of front-ends as exchanges. He referenced guidance from the SEC in the late 1980s and early 1990s, which stated that interfaces connecting buyers and sellers to exchange securities were not considered exchanges if settlement and payment occurred elsewhere.
Furthermore, Cochran highlighted a 1998 decision by the SEC where the Commission declared that it would no longer respond to No-Action Letter requests, indicating a shift in its approach to regulatory guidance.
Regarding Uniswap specifically, Cochran argued that the platform’s front-end, developed by Uniswap Labs, should not be considered part of the exchange itself. He pointed out that the front-end and the smart contract used for trades are separate elements, and users can execute trades through other interfaces or directly through a node.
Uniswap, known for enabling automated token exchanges on the Ethereum blockchain, has been under regulatory scrutiny since 2021. The platform recently received a Wells notice from the SEC, signaling potential enforcement action. Uniswap Labs has maintained that the front-end portal is distinct from the autonomous Uniswap protocol, which is open-source and available for public use.
Cochran’s analysis supports Uniswap’s claims and raises questions about the SEC’s approach to regulating decentralized exchanges. As the crypto industry continues to evolve, the clash between innovation and regulation is likely to intensify, with Uniswap’s case serving as a key battleground in this ongoing debate.