Uniswap Triumphs In Federal Court Over Securities Allegations In Victory For DeFi By Benzinga

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Uniswap Triumphs In Federal Court Over Securities Allegations In Victory For DeFi

Published Aug 30, 2023 17:38 Updated Aug 30, 2023 18:40

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Uniswap Triumphs In Federal Court Over Securities Allegations In Victory For DeFi

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Benzinga - by Murtuza Merchant, Benzinga Staff Writer.

In a landmark decision, Uniswap (CRYPTO: UNI), a leading decentralized finance (DeFi) platform, emerged victorious Wednesday in a legal battle in the United States District Court for the Southern District of New York.

The case revolved around allegations that Uniswap violated certain provisions of the Securities Act.

The Class Action Suit Against Uniswap: The civil lawsuit was filed by Matthew Risley, who alleged that Uniswap was operating an illegal securities exchange. Risley and others argued that Uniswap's liquidity pools, which allow users to swap cryptocurrencies without a centralized intermediary, were securities because they were investment contracts.

The judge disagreed, finding that Uniswap's liquidity pools did not meet the definition of an investment contract. The judge noted that liquidity providers in Uniswap's pools do not have a common enterprise with Uniswap and they do not expect to make profits solely from the efforts of others.

Central to the case was the question of whether Uniswap could be considered a "statutory seller" under the Securities Act.

Also Read: Bitcoin Is Like A Teenager Hopped Up On Sugar Diet Of Low Interest Rates: Analyst

The plaintiffs proposed two theories: the transfer of title theory and the solicitation theory.

Under the transfer of title theory, the plaintiffs argued that since Uniswap wrote and maintained the smart contracts that facilitated token transactions, they effectively passed the title of the tokens to the plaintiffs.

The court rejected this argument, noting that just because Uniswap may have drafted the contracts underlying the platform, it did not mean it held title to the assets traded on the platform.

The solicitation theory was based on the plaintiffs' claim that Uniswap had promoted and solicited the tokens directly to them to increase the value of their UNI governance tokens.

The court found this theory implausible, emphasizing that the plaintiffs had not provided substantial evidence to show that Uniswap had actively solicited the purchase of a security for their financial gain.

This decision is expected to have significant implications for other crypto platforms facing similar legal challenges and sets a precedent for future cases in the rapidly growing DeFi sector.

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