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SEC is Reported to Have Started Inquiries on Other DeFi Dapp Makers Beyond Uniswap

U.S. regulators are looking at more decentralized finance players than just Uniswap, according to a person familiar with the matter. 

Officials are making a broad-based inquiry into a number of platforms in DeFi, other than just the one into Uniswap Labs, according to a source with knowledge of the matter who declined to be named as the information is private. The SEC has become increasingly focused on DeFi, the person said. 

The Wall Street Journal today reported that Uniswap Labs, the company developing DeFi’s most popular decentralized exchange, is under investigation by the U.S. Securities and Exchange Commission (SEC). 

Should the SEC take enforcement action against Uniswap, it would doubtlessly ripple across this new corner of the blockchain industry. While Uniswap Labs is a company, the Uniswap protocol is considered to be one of the most decentralized applications in decentralized finance, and it’s also the largest exchange by volume. It could very well be a turning point for the industry. 

However, Swiss Stake, the company behind another decentralized exchange, Curve, has not received any inquiries from the SEC according to its founder, Michael Egorov. “I think we are well prepared / discussed possibility of such events with our lawyers (after hearing some rumours),” Egorov told The Defiant via email. 

Curve is currently the fourth-largest DeFi protocol in terms of total value locked, according to DeFi Pulse, with $5B dollars more in assets deposited into it than Uniswap. Uniswap has $7.3B of assets deposited in its smart contracts and today has transacted more than $1B in trading volume.

The SEC did not respond to a request to confirm the broader inquiry from The Defiant nor an earlier request for comment specifically about Uniswap Labs.

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The SEC has been researching the space for the past few months, making fact-finding queries about the structure and mechanics of decentralized finance, another source with direct knowledge said. 

SEC chair Gary Gensler has made it clear that the agency plans to crack down on DeFi. 

“Unlike traditional exchanges, like the Frankfurt Stock Exchange, crypto platforms provide direct access to millions of investors. There’s no broker in between the public and the platform,” Gensler said on Sept. 1 before the European Parliament Committee on Economic and Monetary Affairs. “Therefore, absent clear investor protection obligations on these platforms, the investing public is left vulnerable. Unfortunately, this asset class has been rife with fraud, scams, and 

A similar moment came in February 2018 when the SEC was reported to be sending out letters to many companies that had run initial coin offerings. Increased regulatory scrutiny coincided with the peak of a bull-run, as cryptocurrency prices plummeted from as high as $19,497 for Bitcoin in December 2017, to as low as $3,237 in December 2018.  

If news of a wide-ranging investigation across various DeFi projects were to be confirmed, it might send similar chills through the markets.

The Defiant has reached out to nine of the largest DeFi protocols on Friday afternoon. Other companies have not responded to The Defiant as of press time.

Kain Warwick, founder of the exchange for synthetic assets, Synthetix, declined to answer any questions from The Defiant about inquiries from the regulator. 

On behalf of Uniswap Labs, a spokesperson with Sard Verbinnen & Co., replied to an inquiry about the investigation from The Defiant with the same statement it sent the Wall Street Journal, “We are committed to complying with the laws and regulations governing our industry and to providing information to regulators that will assist them with any inquiry.”

Investigations are not litigation

There’s a distinction between the decentralized exchange and the company that writes its software, it should be noted. As Ethereum governance researcher Vlad Zamfir wrote on Twitter, “Uniswap Labs is a Silicon Valley VC funded New York startup. It is not Uniswap.”

There’s also a difference between an investigation by the SEC and an enforcement action.

That said, it’s notable that the paper reported it as an investigation. An investigation is a higher level than an inquiry. In an investigation, the agency can issue subpoenas, as the SEC website explains.

An investigation will not necessarily lead to some kind of action. 

There are also different kinds of actions it could take. The SEC could bring an enforcement action, as it did in the case of Block.One, the creator or EOS, which ultimately ended in a settlement.

The case could also land in Federal court, as it did with the two well-known messaging apps that launched tokens, Kik, Telegram and Ripple Labs. Ripple has fought the agency vociferously and won a series of key rulings in its legal battle, emboldening crypto supporters to believe that just because the government says it has jurisdiction over digital currencies, that doesn’t necessarily make it so.

 As far as we know no action has yet been taken against Uniswap Labs, nor any other DeFi project that may be in communication with the agency.