So far, the powerful US Securities and Exchange Commission had not interfered in Decentralized Finances (DeFi). But now, according to media reports, she is investigating the business model of Uniswap (UNI).
The US Securities and Exchange Commission has few friends in the crypto industry – and its image there is likely to remain negative. Because as the Wall Street Journal reports, the SEC has started preliminary investigations against Uniswap Labs. Uniswap (UNI) is a pioneer among the decentralized crypto exchanges (DEX), where more than 1 billion US dollars are converted every day. Observers see the SEC’s move as an indication that it is being examined whether and, if so, how the rapidly growing Decentralized Finances (DeFi) division in the crypto industry needs to be regulated.
The SEC did not deny the Wall Street Journal report. A spokeswoman for Uniswap Labs said it was committed to complying with laws and rules. Therefore, one will cooperate fully with the SEC. This alone shows that there are sometimes anonymous makers behind DeFi projects. But the big players like Uniswap now mostly have a crypto company behind them and thus contact persons for the SEC. Jake Chervinsky, chief attorney at DeFi Projekt Compound (COMP), presented per Twitter Clearly: Investigations by the SEC do not constitute indictments and are no evidence of violations of the law.
SEC versus crypto industry – are new goals being set?
In April 2021, the SEC got a new boss in Gary Gensler. Gensler used to teach blockchain technology himself and has specialist knowledge of crypto topics. But that in no way makes him a supporter of Bitcoin and Co. – on the contrary: In a speech he recently emphasized the lack of protection for investors in the crypto industry and spoke of the “Wild West”. The ongoing billions in the SEC’s proceedings against Ripple (XRP) are currently in the focus of the crypto scene, as a formal indictment has come about here.
With DeFi and Uniswap, the SEC is breaking new ground. One thing is clear: typical DeFi code, which organizes crypto transactions in a decentralized manner using smart contracts, cannot be regulated externally. But for example with the authors or Fiat gateways in DeFi projects, the SEC would have various points of attack to use its power if it classifies DeFi projects as requiring approval. When the SEC critically fought ICOs (Initial Coin Offerings) from 2018, this previously popular financing instrument for new crypto projects came to a standstill. Most recently, the planned Telegram token with almost 2 billion US dollars in funding will have to experience this in autumn 2019.
We hear from the USA that DeFi projects other than Uniswap have also received post from the SEC. For ShapeShift, founder Erik Voorhees commented on the advances made by SEC via tweet with the note: Even the mere collection of information by the SEC causes costs of millions for affected projects, which would not be reimbursed even if such preliminary investigations did not prove any violations of the rules. In general, the SEC still defines its powers on the Howey Test of 1933. The crypto industry has been demanding for years that this test must be revised to take into account the innovative approaches of the 21st century.
Conclusion: SEC stirs up unrest in the DeFi division
The SEC typically does not comment on ongoing investigations and avoids legal mistakes. Fast public results in the Uniswap case are hardly to be expected. The UNI price curve is correspondingly stable, and other leading DeFi projects also reacted robustly. But the discussions on Twitter show: The SEC’s approach is by no means dismissed as insignificant and will not cause panic among DeFi makers at the moment, but certainly cause unrest.
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