Original - Odaily

Author - Nan Zhi

Early this morning, Uniswap founder Hayden Adams posted on the X platform that Uniswap received a Wells Notice from the U.S. Securities and Exchange Commission (SEC). As soon as the news came out, UNI fell by about 5.5%, from 11.1 USDT to the current 9.3 USDT.Odaily will analyze the Wells Notice and Uniswap’s response in this article.

What is Wells Notice

Wells Notice is an SECAfter concluding an investigation into a person or companySend a letter notifying them that the SECPlans to take enforcement action against it. The notice informs the person or company being investigated,The SEC has concluded, arguing that they violated securities laws. The notice indicates that the SEC has determined that litigation is likely and provides the notified party an opportunity to explain why enforcement action should not be pursued.

There are several elements in this: The SEC has made a preliminary characterization of the company under investigation and its business; but it is not a formal and final prosecution document, and the company under investigation still has room to respond. In short, receiving a Wells Notice means there will be a clear impact and there is a possibility of further deterioration of the situation, but the final outcome cannot currently be predicted.

Uniswap responds: Fighting for DeFi

Last night, Uniswap released a response blog post Fighting for DeFi, and Odaily summarized the key points as follows.

This is a political attack

Today, Uniswap Labs received a Wells Notice from the SEC Enforcement Division, and they plan to recommend legal action against Uniswap.UniSwapThe entire current product suite will continue to be available, and we will continue to introduce new products. Considering the SEC’s ongoing lawsuits against Coinbase and other companies, and their complete reluctance to provide clarity or a path to registration for businesses to legally operate in the United States, we can only conclude that this is a challenge for even the most established companies building on blockchain technology. The latest political efforts from Best Solutions Corporation.

The SEC has no congressional authorization

The SEC has jurisdiction only over securities, such as assets classified by law as investment contracts. The court ruling in SEC v. Ripple made it clear that secondary market transactions in digital assets generally do not constitute investment contracts. These are the assets that make up the vast majority of transactions on the Uniswap protocol. Even the SEC chairman admitted in congressional testimony that new regulation of tokens would require Congress to pass new laws, which the SEC lacks authority to do.

Uniswap does not meet the legal definition of a stock exchange

Even setting aside the Ripple case, the Uniswap protocol, DApps, and wallets still do not meet the legal definition of a stock exchange or broker. This was made clear in the recent SEC v. Coinbase case, where at the earliest stages of the case the court had rejected the SEC’s claim that a cryptocurrency wallet was a broker.

UNI does not meet the legal definition of a security

The UNI Token is not a security as it does not meet the legal definition of any type of security, including the definition of an “investment contract.” There is no contract or commitment between Uniswap Labs and the token’s 300,000 holders, there is no joint enterprise, and the token’s value does not solely depend on Uniswap Labs’ efforts.

The Commodity Futures Trading Commission has made it very clear that neither Bitcoin nor Ethereum are securities. And the Uniswap technology ecosystem is decentralized enough, just like Bitcoin and Ethereum.

Has anyone ever received a Wells Notice?

Before Uniswap, many companies/projects had received Wells Notice, and the worst outcome was undoubtedly BUSD issuer Paxos.

BUSD collapsed overnight

February 13, 2023U.S. SEC enforcement officers issue Wells notice to Paxos, said BUSD issued and listed by Paxos was an unregistered security and planned to sue Paxos for violating investor protection laws. Meanwhile, the New York State Department of Financial ServicesCommand PaxosStop issuing more BUSD tokens.

On the same day, John Reed Stark, former director of the SEC’s Office of Internet EnforcementTweet that: The U.S. SEC issued a Wells notice to Paxos, notifying Paxos of potential enforcement action. In my 18 years with the SEC Enforcement Division, I cannot recall a time when I issued a Wells notice and did not Take enforcement action. SEC’s crypto actions continue.”

The next day, stablecoin issuer PaxosRelease a statement, stated that it had received a Wells Notice from the U.S. Securities and Exchange Commission (SEC), but firmly disagreed with the SEC staff’s opinion because BUSD is not a security under federal securities laws. To be clear, Paxos faces no other charges beyond this.

Soon after, Coinbase stopped supporting BUSD, and BUSD within a month$7.9 billion in redemption requests received, accounting for nearly 50% of the circulation. Although the Binance Launchpool in March still supported the use of BUSD for new currency mining, BUSD eventually withdrew from the stage of history.

Bittrex exits the US

April 23, David Maria, general counsel of cryptocurrency exchange Bittrexexpress, SEC enforcement officers issued a Wells Notice to Bittrex in March, stating that Bittrex violated the law by operating as an exchange, broker-dealer, and clearing house without registering with the regulator.

Maria said Bittrex was already preparing to wind down its U.S. operations at a moment’s notice. At the time, Bittrex didn’t know whether the SEC would sue because the company was winding down its U.S. operations. If the SEC decides to pursue enforcement action, Bittrex will file a lawsuit unless the regulator can make a reasonable settlement offer.

In addition to the above-mentioned companies, Coinbase and Ripple have also received Wells Notices. This action even caused the latter to be directly delisted from Coinbase, thereby incurring high legal costs.

in conclusion

While the Wells Notice is not a final prosecution or enforcement decision, we know from historical experience that there will be ongoing negative impacts in the short to medium term.