Uniswap Labs reaches settlement with CFTC over allegations of derivative trading

The U.S. Commodity Futures Trading Commission CFTC has charged and settled with Uniswap Labs, the developer of the decentralized exchange Uniswap, for offering "illegal digital asset derivative products trading," resulting in a fine of $175,000 imposed on Uniswap Labs.

Uniswap Leveraged Tokens Found Illegal and Fined

Uniswap Labs has developed and maintained an open platform that allows users to trade in hundreds of liquidity pools on the protocol. The CFTC found that some tokens on the protocol and traded through Uniswap provided users with leverage on digital assets such as Ethereum and Bitcoin.

According to CFTC regulations, these leveraged tokens are considered leveraged or margined commodity transactions and must be traded on CFTC-registered trading platforms. However, since Uniswap Labs is not registered, the provision of these leveraged tokens was deemed illegal.

CFTC Enforcement Director Ian McGinley stated:

Today's action underscores once again that as digital asset platforms and DeFi ecosystems evolve, enforcement agencies will vigorously enforce the Commodity Exchange Act (CEA). DeFi operators must remain vigilant to ensure that transactions comply with regulations.

However, CFTC also acknowledged Uniswap Labs' strong cooperation with the enforcement authorities in the investigation and reduced the civil penalty to $175,000.

Uniswap Labs General Counsel Katherine Minarik posted on X that the company is pleased to have "resolved" the matter.

Uniswap Labs resolved the CFTC matter, which involved a small part of the transactions conducted through our handful of token interfaces, with a standard neither admit nor deny settlement and a $175,000 fine. We are pleased to have resolved this matter and continue to focus on building the future of DeFi for all.

Commissioner Criticizes: Regulatory Oversight Through Enforcement

However, some commissioners believe that the CFTC's actions represent "regulatory oversight through enforcement." Given that the Commodity Exchange Act and CFTC rules are designed for traditional, centralized market infrastructure providers and intermediaries, the CFTC should either create rules or at least provide guidance for DeFi protocols to know how to comply.

CFTC Commissioner Summer K. Mersinger also warned that this could lead to DeFi developers creating businesses, job opportunities, and economic activity abroad, away from the U.S. The broad extension of platforms being held accountable for the actions taken using their protocols is also concerning and could severely hinder innovation progress.