 CFTC charges Uniswap with illegal derivatives trading 
2024-09-05

The United States Commodity Futures Trading Commission (CFTC) charged decentralized exchange (DEX) developer Uniswap Labs with illegally offering leveraged cryptocurrency trading to US retail investors, according to a Sept. 4 announcement.
The CFTC said Uniswap Labs agreed to settle the charges by paying a $175,000 civil penalty and by agreeing to cease violating the Commodity Exchange Act (CEA). 
The CFTC’s enforcement division “will vigorously enforce the CEA as digital asset platforms and DeFi ecosystems evolve,” Ian McGinley, the CFTC’s director of enforcement, said in a statement. “DeFi operators must be vigilant to ensure that transactions comply with the law.” 
Summer Mersinger, one of the CFTC’s five commissioners, objected to the CFTC’s handling of the enforcement action in a Sept. 4 statement criticizing the agency for what Mersinger described as “regulation through enforcement.” 
“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,” Mersinger said. “Unfortunately, today is not that day.”
Additionally, Mersinger said Uniswap has already halted trading on the specific leveraged tokens that triggered the CFTC action. Those tokens include BTC 2x Flexible Leverage Index token (BTC2XFLI) and ETH 2x Flexible Leverage Index token (ETH2XFLI), among others, according to the CFTC’s Sept. 4 Order. 
The order does not identify the tokens’ issuer but they appear to be created by Index Coop, a DeFi protocol specializing in leveraged yield strategies. 
Commissioner Caroline Pham also dissented, arguing it was a “violation of the Administrative Procedure Act (APA) for the commission to establish such sweeping interpretations in an administrative settlement order, rather than engage in notice-and-comment rulemaking.”
Pham also said she was “puzzled how we can charge the Respondent based upon no evidence beyond the word ‘leveraged’ appearing in the names of these tokens.”
The CFTC regulates commodity derivatives products and generally does not oversee spot commodity markets or securities. Among the “hundreds of liquidity pools on the protocol […] were a limited number of leveraged tokens,” which qualify as “leveraged or margined commodity transactions” under the CFTC’s jurisdiction, the agency said. 
US Securities and Exchange Commission (SEC) Chair Gary Gensler has argued that “the vast majority” of digital assets are securities under US law. 
The SEC alleged in April that Uniswap was operating an unregistered securities exchange. Uniswap responded in May, describing itself as a software company that “reimagines market structures” and not a securities exchange. 
Uniswap is among the most popular DeFi protocols, facilitating token swaps on more than a dozen blockchain networks. As of Sept. 4, it held more than $4.3 billion in total value locked (TVL), according to DefiLlama. 