Uniswap Labs settles with the US CFTC for $175,000 on charges related to derivatives trading
2024-09-04

The U.S. Commodity Futures Trading Commission filed and settled charges against Uniswap Labs for $175,000 in connection to the firm's offering of "illegal digital asset derivatives trading."
“Today’s action demonstrates once again the Division of Enforcement will vigorously enforce the CEA [Commodity Exchange Act] as digital asset platforms and DeFi ecosystems evolve,” said the CFTC Director of Enforcement Ian McGinley in a statement on Wednesday. “DeFi operators must be vigilant to ensure that transactions comply with the law.”
Uniswap Labs, the developer of the decentralized exchange Uniswap, has also previously received a Wells Notice from the U.S. Securities and Exchange Commission. The SEC said in May that Uniswap Labs acted as an unregistered securities exchange and unregistered broker-dealer, according to the firm. 
On Wednesday, the CFTC said Uniswap Labs allowed institutional and retail users to trade digital assets through a digital asset protocol on the Ethereum blockchain. That protocol allowed people to "create and trade with liquidity pools, which consist of a matched pair of digital assets that are valued against each other." Users could trade leveraged tokens, which gave them exposure to ether and bitcoin, the CFTC said. Those leveraged tokens were created and issued by a third party that was not affiliated with Uniswap Labs, the CFTC added. 
Uniswap Labs violated commodities laws because it was not registered properly with the CFTC, the agency said.
"The order finds these leveraged tokens are leveraged or margined commodity transactions that did not result in actual delivery within 28 days and therefore can be offered to non-Eligible Contract Participants only on a board of trade that has been designated or registered by the CFTC as a contract market, which Uniswap Labs was not," the CFTC said. 
The regulator also asserted in its order that both bitcoin and ether are commodities. Whether ether is a security or a commodity has been debated for some time. CFTC Chair Rostin Behnam has said ether is a commodity, while the Securities and Exchange Commission has not been as clear. 
Uniswap Labs did not admit or deny the CFTC's finding. The agency noted the firm's cooperation with its enforcement team and said it was reflected in the fine. 
Katherine Minarik, chief legal officer at Uniswap Labs, said the firm was glad to put the case "to rest," in a post on X on Wednesday.
"Today Uniswap Labs resolved a CFTC matter, about a fraction of a percent of trading through our interface of a handful of tokens, for a $175k fine in a standard no admit-no deny settlement," Minarik said. "We are glad to put this to rest and stay focused on building the future of DeFi for all."
Also on Wednesday, CoinDesk reported that New York State Attorney General Letitia James' office sent subpoenas to venture capital firms, including Andreessen Horowitz and Union Square Ventures, regarding their investments in Uniswap. 
Commissioners warn of longer term effects
Both of the CFTC's Republican commissioners criticized the agency's move to bring charges. 
"Today, the Commodity Futures Trading Commission ('CFTC' or 'Commission') once again swings its proverbial enforcement 'hammer' against another DeFi protocol," said CFTC Commissioner Summer Mersinger in a statement. "Given that the Commodity Exchange Act ('CEA') and CFTC rules were written for traditional, centralized market infrastructure providers and intermediaries, it was my hope that one day soon the Commission would consider rulemaking, or at the very least guidance, making clear how DeFi protocols could comply with them. Unfortunately, today is not that day."
Mersinger called the charges "regulation through enforcement," a common phrase in the crypto industry to show disdain for regulators' approach to digital assets. Mersinger also warned that the CFTC's charges could have long term consequences. 
"Through this settlement, the Commission appears to be taking the position that any DeFi platform could be liable for any and all conduct occurring on its protocol," Mersinger said. "The practical effect of this approach is to severely chill the launching of any DeFi protocol within the United States and to significantly increase the odds that all DeFi innovation and economic activity will occur elsewhere."
Commissioner Caroline Pham also pushed back and said the agency's action could be a violation of the Administrative Procedures Act and said the CFTC should have pursued rulemaking instead. The APA governs how federal agencies develop and issue rules. 
Regulators should take a different approach to regulating DeFi, Pham said. 
"Undoubtedly, there can be fraud in DeFi markets, as in any marketplace," Pham said. "I believe the CFTC can and should vigorously pursue fraud and manipulation in our markets and bring bad actors to justice. But that is not what this case is about. It is regretful that the Commission’s action today is instead a misguided and rushed attempt to beat the SEC to the punch and claim jurisdiction over DeFi."
Update: Sept. 4, 4:35 p.m. UTC to include details throughout
Update: Sept. 4, 5:35 p.m. UTC to include report from CoinDesk
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