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Uniswap Labs recently responded to a Wells Notice from the SEC, arguing that their Protocol should not be considered an exchange or broker under securities laws. Bill Morgan, a lawyer associated with Ripple’s XRP case, shared some critical insights and drew parallels to the Ripple case.
Key Arguments from Uniswap Labs
Uniswap Labs made several key points in their filing with the court, including that the Protocol should not be treated as an exchange or broker under securities laws.
They argued that the Protocol provides for efficient trading of digital assets and does not deal with securities transactions. Unisoup pointed out that the majority of the volume traded on the Protocol was non-securities assets, such as Bitcoin, Ethereum, stablecoins, and meme coins.
“The Protocol connects a swapper on one side and an automated market making function coded into the autonomous Protocol on the other,” Unisoup stated.
They further stated that the Protocol was highly decentralized and autonomous and pointed out, “Once a particular version of the Protocol is deployed, it exists indefinitely, even if Labs were to stop operating, and it cannot be modified or deleted by Labs or by any other person or entity.”
Airdrops and the Ripple Case
Unisoup also took up the issue of airdrops in their response. They said airdrops were not an investment of money.
“The retroactive airdrop to historical users of the Protocol, which occurred in September 2020, did not involve any investment of money,” they said.
They drew parallels with the early Ripple airdrops, noting the SEC originally viewed these airdrops as investment contracts in the Ripple case but then abandoned this view in the summary judgment motion. The note pointed out inconsistencies in classifying tokens based on their distribution method.
Bill Morgan’s Stance
Ripple’s XRP lawyer, Bill Morgan, commented on Uniswap’s response. Morgan writes that the interesting point in Uniswap’s argument is that they need to mention that airdrops are not investments. He believes the SEC must’ve mentioned airdrops in the Wells notice because Uniswap felt it had to argue that airdrops are not investment contracts, drawing parallels with the Ripple case.
“The SEC had initially argued in the Ripple case that these giveaways were investment contracts but abandoned this position in the summary judgment motion,” Morgan wrote on X.
He further explained, “The fact that the SEC dropped the XRP giveaways was a sign that the SEC always knew the token itself was not a security. It makes no sense that some tokens given away are inherently not securities, and other tokens sold are inherently securities. It must be the circumstances of the sale.”
On the other hand, In its statement, Uniswap Labs argued that the SEC’s proposed rule change to redefine “exchange” to include open-source software such as the Protocol is unlawful. They claimed that their distributions of UNI tokens were exempt from registration according to established exemptions and that the claim of Unisnap Labs acting as an unregistered clearing agency was unfounded.
Uniswap warned the SEC’s enforcement action could stifle innovation and competition in digital asset markets. They emphasized that their Protocol is fundamentally different from the conventional exchanges subject to securities regulation.