The crypto industry is currently booming after another legal victory this week in a class action lawsuit against Uniswap.
On August 30, the US District Court for the Southern District of New York dismissed a lawsuit against the decentralized exchange, its CEO and venture capital backers.
The lawsuit was filed by six people who purchased fraudulent Uniswap tokens between December 2020 and March 2022. The plaintiffs alleged that they lost money in liquidity pools controlled and created by Uniswap’s smart contracts.
The class action was filed in April 2022 by plaintiffs seeking damages under the Securities Act of 1933, the same legislation the SEC used to target crypto companies.
The case of cancellation of exchange was rejected
However, Judge Katherine Polk Failla found that Uniswap and the plaintiffs did not know the identity of the fraudsters who issued the fake tokens. Moreover, this is the same judge presiding over SEC v. The Coinbase Lawsuit. More interestingly, the judge said that Ethereum is a commodity, not a security.
According to the judge, the case has nothing to do with securities laws.
“The Court declines to expand the federal securities laws to cover the alleged conduct, concluding that the plaintiffs’ concerns are better addressed to Congress than to the Court.”
Observers and industry supporters have commented that this shows a deep understanding of the decentralized finance (DeFi) ecosystem. Brown Rudnick partner Stephen Palley commented:
“It’s not about product liability or negligence, it’s about some of the same things: foreseeability of harm, liability for third-party misconduct and third-party damages.”
He added that this and similar cases will become important legislation in the next decade.
ConsenSys attorney Bill Hughes said:
“It’s big. I still understand the decision, but it has a more direct impact on the application of existing securities laws to DeFi than the Ripple or TerraForm Labs cases.
“The fact that Uniswap created a platform on which fake token issuers carried out their schemes does NOT make Uniswap liable for fraud and consequential damages, much less under US securities laws,” he added.
Uniswap is full of fake tokens, but since it is a decentralized protocol, it cannot be blamed or responsible for them.
UNI price views
Uniswap token prices did not react positively to the news, falling another 3% on the day. As a result, UNI was trading at $4.62 at the time of writing.
The DEX token has lost 15% over the past two weeks and remains 90% below its May 2021 all-time high of $44.92.