The Commodity Futures Trading Commission CFTC has ordered Uniswap to pay a $175,000 civil monetary penalty in regard to allowing “illegal digital asset derivatives trading.” The CFTC said the enforcement action was part of a broader strategy of targeting DeFi or decentralized finance firms.
The order demands that Uniswap Labs pays the penalty and to cease and desist from violating the Commodity Exchange Act (CEA).
The CFTC says that Uniswap developed a blockchain-based digital asset protocol that offered to non-Eligible Contract Participants and institutional users in the US and internationally the ability to trade digital assets through use of the Ethereum blockchain. Uniswap Labs is said to have developed and maintained a web interface that it made available to users.
Ian McGinley, Director of Enforcement, said the CFTC will vigorously enforce the CEA as DeFi ecosystems develop.
“DeFi operators must be vigilant to ensure that transactions comply with the law.”
Two CFTC Commissioners dissented from the order.
Commissioner Caroline Pham said she is concerned about the ever-expanding jurisdictional overreach that perpetuates a lack of regulatory clarity. She said the decision was not supported under the CEA and is a violation of the Administrative Procedure Act (APA)
Commissioner Summer Mersinger called the order another swing of the CFTC’s proverbial enforcement hammer or “regulation through enforcement.” She explained:
“Uniswap created, offered, and maintained a protocol that allowed for trading of leveraged tokens by third parties, all facts that support the charges in this settlement. But, Uniswap also took proactive measures, attempting to block trading of leveraged tokens. In fact, Uniswap blocked the particular tokens at issue in this settlement after the Commission’s settlement in a previous “DeFi Sweep” involving those same tokens. Rather than applauding Uniswap for being attentive to our enforcement efforts and initiating steps to respond to our approach in policing the DeFi space, we brought charges against Uniswap covering the time period before those particular tokens were blocked from its platform. For those in the DeFi community trying to comply with the CEA and CFTC regulations, the only take-away this settlement offers is the approximate cost the Commission assigns to an attempt by DeFi to do the right thing.”
The Biden Administration has decidedly been anti-digital assets, not pursuing a new regulatory approach that caters to the emerging ecosystem while allowing regulators to pursue alleged transgressions of securities or commodities law aggressively.
