By
Temitope Olatunji
April 26th, 2024
Aside from dismissing the case against Uniswap, the judge also classified popular cryptocurrencies Ether (ETH) and Bitcoin (BTC) as commodities.
United States District Judge Katherine Polk Failla has dismissed with prejudice the class action suit against the decentralized exchange Uniswap.
Recall that in April 2022, six former investors on Uniswap filed a suit against the exchange for allowing scam tokens on its platform. The individuals claimed to have bought scam tokens EthereumMax (EMAX), Bezoge (BEZOGE), and Alphawolf Finance (AWF) on the platform. They alleged that it resulted in the loss of substantial money.
Consequently, the defendants demanded a repeal of the (smart) contracts they entered when purchasing the scam tokens, with compensation. This, they claimed, was covered under the Securities Act of 1933 and the Securities Exchange Act of 1934.
Judge: Uniswap Not to Blame
While the judge acknowledged that the tokens in question qualified as securities, she dismissed the lawsuit in its entirety. Judge Failla noted that buying the scam tokens on the Uniswap protocol did not make the decentralized exchange liable for the fraudulent act. She opined that there was no way to identify the actual scam token issuers.
“Indeed, this is like holding Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer,” the judge said.
Additionally, the judge revealed that the current state of cryptocurrency regulations in the United States does not provide a basis for the plaintiffs’ case. She cited the many uncertainties regarding what falls under what based on the current regulatory landscape.
Thereafter, she enjoined that such a case would be better addressed to Congress than a court.
Ruling May Set Precedent for Future Cases
Aside from dismissing the case against Uniswap, the judge also classified popular cryptocurrencies Ether (ETH) and Bitcoin (BTC) as commodities.
Defining what is a commodity and security has been a major source of contention between the SEC and crypto companies. Most recently, the SEC lost a case to Ripple when the court ruled that Ripple’s token, XRP, cannot be considered a security for regular investors.
Because of the SEC’s position, many believe the ruling could influence future cases against decentralized protocols.
Partner at Brown Rudnick, Stephen Palley, suggested the case may become a major legislation point in the coming decade. Elsewhere, ConsenSys lawyer Bill Hughes said, “This more directly impacts the application of current securities laws to DeFi.”
Whatever the case, Uniswap and its founder will breathe a sigh of relief for winning the case.
