Uniswap Labs, the developer behind the largest decentralized exchange in the crypto space, Uniswap, is being investigated by the Securities and Exchanges Commission (SEC). Crypto regulation has been gaining much traction lately. A lot of cryptocurrency exchanges have been recently subject to probes in their activities. In a bid to determine if their product offerings are legal and fall under the prerogative of the concerned governing bodies.
As decentralized finance grows, there has been increased scrutiny of the exchanges which offer them and the protocols they operate on. Uniswap currently offers the largest market for decentralized finance. And now, regulators are investigating the parts of this market that have long resisted oversight, The Wall Street Journal reported.
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Information gathered from people who are familiar with the matter says that the Securities and Exchanges Commission is examining Uniswap Labs. Mostly trying to gather information on how Uniswap is marketed and used by investors.
More investors are leaving traditional financial products in favor of DeFi. This includes using decentralized exchanges for lending and borrowing against their cryptocurrencies, trading assets on the protocols, and other services such as staking.
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Mostly, once developers release these protocols, they say they no longer possess control over it. This greatly reduces how liable they are when it comes to laws and regulations. But SEC Chairman Gary Gensler has said that these protocols may still be controlled by the developers or even middlemen who benefit from the profits created from trading fees and digital tokens that give the holders’ governance rights.
Ongoing Investigation Into Decentralized Exchange, Uniswap
News of the investigation only recently broke. Putting the investigation in the very early stages, which means that the probe may or may not result in any serious or formal allegations of wrongdoing on the part of Uniswap Labs. Since there are no central authorities governing these decentralized exchanges, levying formal allegations could prove to be tricky, given it is mostly community-controlled. And also, investors can use the protocols without going through the official apps provided by the developers.
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SEC’s Chairman Gensler also pointed out that regulators are focusing more on exchanges that offer services that need to be registered under securities laws. These include exchanges that enable trading and the creation of cryptocurrencies. But most decentralized exchanges developers have come out to say that since they do not control these protocols, then they do not have to register with the regulators.
The SEC has also sought information from startups about the activities being carried out on their platforms. These platforms allow traders to make money by lending other investors cryptocurrencies. Hence, the lenders make money from borrowing out their cryptocurrencies. The SEC is trying to decipher from information gathered if this falls under its purview and these assets should be classified as securities that need to be registered with regulators.
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Speaking on the issue, a spokesperson for Uniswap Labs assured that the company is “committed to complying with the laws and regulations governing our industry and to providing information to regulators that will assist them with any inquiry.”
Total DeFi market cap now worth $136 billion | Source: Crypto Total DeFi Market Cap on TradingView.com
Featured image from Medium, chart from TradingView.com