DeFi’s “Huge Win” moment: What does it mean for Uniswap to win a class action lawsuit?
Original author: Jaleel, Kaori, BlockBeats
Original editor: Jaleel, BlockBeats
Regulatory compliance is now an unavoidable topic in the encryption field. In the past, mainstream CEXs such as Binance and Coinbase were fighting with U.S. regulatory agencies. Later, Ripple, Grayscale and the SEC were fighting in and outside the court. If we focus on the DeFi field, Tornado Cash suffered from regulatory issues, and the founder faced jail. Now the DEX leader Uniswap has also joined this popular party and brought the hard nut of DeFi supervision to the table.
DeFi’s “Huge Win” moment
The court believes that the defendants rebuttal is justified. This case is more like requiring self-driving car developers to be held liable for third parties using the cars to cause traffic violations or rob banks. In a long thread today, Uniswap founder Hayden Adams excerpted a court document from the U.S. Southern District Court of New York and shouted Huge Win, long live DeFi!
This matter, known as Huge Win, is a class action lawsuit against Uniswap that was dismissed by a judge in the U.S. District Court for the Southern District of New York.
On April 9, 2022, U.S. law firms Kim Serritella and Barton announced the launch of a securities class action lawsuit, accusing Uniswap Labs, Paradigm, a16z and other defendants of violating securities laws by issuing and selling unused digital currency in the form of digital tokens on the Uniswap platform. Register securities, including Uniswap’s own token UNI.
The outcome of this lawsuit is scheduled for August 29, 2023. Court documents from the U.S. District Court for the Southern District of New York indicate that the Uniswap platform is capable and in many cases operates legally; there is no transaction between the plaintiff and the Uniswap platform and protocol; current securities laws do not seem to cover the DeFi protocol itself for using it to defraud others. Responsibility. The judge found that the plaintiffs were harmed by fraudulent token issuers who exploited Uniswaps core contracts and relays, and that Uniswap created the platform in which fraudulent token issuers committed fraud, at least under U.S. securities laws. This does not mean that Uniswap is liable for the fraud and consequential damages.
Consensys lawyer Bill Hughes said the judge clearly determined in the class action ruling against Uniswap that Ethereum is a commodity, not a security. Although it is unclear whether the plaintiff will appeal, many lawyers in the cryptocurrency field may cite this case and its judgment in the future. Uniswap’s “Huge Win” moment also reminds us of the Tornado Cash case.
Tornado Cash hit by strong U.S. sanctions
On August 8, a year ago, the official website of OFAC (the Office of Foreign Assets Control of the U.S. Department of the Treasury) showed that some addresses that interact with the Tornado Cash protocol or Ethereum addresses related to it will be placed on the SDN List (U.S. Special Administrative Region). Develop a list of nationals) and impose sanctions.
Related Reading:Interpretation of the most severe encryption sanctions in history: what happened to Tornado Cash》
Tornado Cash has emphasized the privacy of its platform since its inception, allowing users to transact without revealing their identities. However, this privacy feature also facilitates illegal transactions to some extent.
Source: U.S. Department of the Treasury
Uniswap founder Hayden Adams once tweeted to express his views on the Tornado Cash incident: Privacy is crucial to a normal and safe society. It is very absurd and dangerous to only focus on privacy to facilitate illegal activities. Sanctioning companies to comply with the law is often not as effective as coming up with sound laws or policies.”
This year, Tornado Cash was hit by a new round of sanctions from the U.S. government, which claimed that Tornado Cash was suspected of providing cover for a series of illegal transactions. On August 24, Tornado Cash co-founder Roman Storm was arrested by the FBI and the Internal Revenue Service on charges of conspiracy to launder money, conspiracy to operate an unlicensed fund transmission business, and conspiracy to violate sanctions. Roman Storm has been released on bail. But they were disappointed that prosecutors charged Roman Storm with helping develop the software, and their novel legal theory has dangerous implications for all software developers. Tornado Cash co-founder Roman Semenov remains at large.
The founder of Tornado Cash is now included in the list of countless other political criminals in the United States, like Ross Ulbricht and Julian Assange before him.
The Tornado Cash incident has made all the protocol layers in the encryption circle sweat, because this sanction bypasses the user privacy layer and directly targets the protocol layer. This is a direct attack on the protocol layer by regulation, it is a crime to create a privacy protocol that can be used by criminals.
Protocol Layers and DeFi: New Directions for Global Regulation
After Tornado Cash, other cryptocurrency services have also been sounded the alarm, reminding them to ensure compliance while pursuing technological innovation. Todays Uniswap lawsuit also triggered our discussion on DeFi regulation.
Today, DeFi is not only a popular trend, but also regarded by many industry insiders as a disruptor of the future of finance. However, with the transformation of the financial system, regulatory difficulties for this new economic model have also emerged. As the DeFi field continues to expand, regulatory agencies have begun to take action and formulate corresponding policies to ensure the healthy development of the field. It can be said that DeFi has gradually attracted the attention of regulatory agencies in various countries. From the United States to France to Hong Kong, the wind vane of global regulatory trends has undergone obvious changes.
In April 2023, the U.S. Department of the Treasury made a thought-provoking gift to the world by releasing an assessment report on DeFi’s illegal financial activities. This carefully compiled document not only reveals the potential risks in DeFi services, but also provides an in-depth analysis of illegal actors using these services to conduct criminal activities. In addition, in July, four U.S. senators proposed the Encrypted Assets National Security Enhancement and Enforcement Act, which aims to strengthen the supervision of KYC, AML and DeFi fields.
Some of the provisions have caused widespread discussion on social media: The bill provides a new framework for supervising DeFi. It requires the supervision of DeFi in the same way as other cryptocurrency institutions. It requires that any person who can control the project must Take responsibility for the project. The bill may mention that if no specific person can control the DeFi service, then any investor who invests more than $250,000 in the project should be responsible for the project.
Source: U.S. Department of the Treasury
Just one day later, the dynamics of the International Organization of Securities Regulatory Commissions (IOSCO) once again aroused widespread concern in the market. According to sources, the organization intends to gradually release regulatory consultations on encrypted assets and DeFi within this year. It is worth noting that IOSCO is not an isolated individual. It represents an international cooperation network aimed at promoting globally recognized securities regulatory standards.
In Europe, the French Financial Market Authority (AMF) has a more positive attitude towards DeFi. Its recent discussion report believes that DeFi not only has the potential to promote financial innovation, but also has hidden risks. Therefore, AMF expressed its intention to cooperate in depth with all parties in the next few years to create a balanced regulatory system.
The old enemy of the encryption circle, SEC Chairman Gary Gensler, has a more pointed view. He believes that most DeFi trading platforms are actually no different from traditional exchanges in definition. Four heavyweight senators in the United States have also proposed new bills on encrypted assets, KYC, anti-money laundering and DeFi, aiming to further clarify the regulatory framework and responsible persons.
The specific management strategies for DeFi in most countries are still in the exploratory stage. The Dubai Financial Services Authority (DFSA), as one of the few regions that have clearly issued DeFi-related policies, has set clear licensing thresholds for DeFi participants. The British Financial Conduct Authority (FCA) has also opened a regulatory sandbox to DeFi applications, providing a testing ground for emerging companies.
Hong Kong, as one of the global financial centers, seems to have a more pragmatic attitude towards DeFi. In the view of Cai Zhonghui, chairman of the Financial Technology Advisory Group of the Hong Kong Securities and Futures Inspection Commission, DeFi is not a completely new existence, and its substantive activities should be subject to regulatory requirements similar to traditional financial entities.
Regulatory verdict on Uniswap and Tornado Cash is quite different
The Tornado Cash incident means that the struggle between encryption protocol and regulation has escalated again, but today in the class action ruling against Uniswap, the judge made a judgment in favor of Uniswap, which seems to want to suppress this The flames of war.
At the end of last year, a16z wrote a letter for the Financial Stability Board (FSB)s International Supervision of Crypto-Asset Activities themed event.comment letter, it was mentioned at the beginning to discuss the difference between DeFi and CeFi, and how an appropriate DeFi regulatory framework should regulate Web3 applications, not Web3 protocols (regulating enterprises, not software). Debate continues as to where DeFi protocols and applications fit into the regulatory environment, but even so, most legal experts agree that any DeFi front-end with US ties (broadly defined) must comply with US sanctions laws.
The two different verdicts of Tornado Cash and Uniswap provide excellent observation examples for this point of view. Regulators are trying to find a balance that does not suppress financial technology innovation while ensuring market fairness, justice and stability. Behind this, the real challenge of supervision lies in how to ensure the simultaneous progress of technology and law, and how to find a common norm in a globalized financial market.
