- A lawsuit filed by investors against Uniswap for the losses incurred from fake tokens has been dismissed.
- In her statement, Judge Failla classified Ether as a Commodity.
- US crypto market still awaits clarity from the legislation since regulators are battling over jurisdiction.
A New York Court has dismissed the class-action lawsuit against Uniswap, the decentralized exchange, stating that Ether(ETH) is a commodity.
According to the lawsuit filed in April last year by a group of investors against Uniswap and its founder Hayden Adams in April 2022, the DeFi platform allegedly violated U.S. securities laws by failing to register as an exchange or broker-dealer, offering and soliciting securities on an unregistered exchange.
By filing the lawsuit, the investors were looking to make Uniswap responsible for their losses as a result of “scam tokens” that were created and traded on the system. The Ethereum (ERC-20) tokens Bezoge (BEZOGE), EMAX (EMAX), and AWF (AWF) are among those mentioned in the lawsuit as examples of tokens.
According to the plaintiffs, because Uniswap Labs is in charge of managing the liquidity pools on the platform, it also had jurisdiction over the pool that con artists established before disappearing with the funds they had stolen.
However, in a dismissing order dated August 30, Judge Katherine Polk Failla stated that ETH and Bitcoin were “crypto commodities”. The distinction was also a factor in Failla’s decision to reject the case; she claimed that the Exchange Act’s justification for Uniswap’s token sales was unpersuasive.
Based on Judge Failla’s ruling published after the order on Wednesday, the decentralized architecture of the Uniswap Protocol rendered identifying scam token issuers “unknown and unknowable,” leaving no “identifiable defendant” in the case.
The plaintiffs argued that Uniswap, in the absence of “actual issuers” of the “scam tokens,” enabled the trades in question by “providing a marketplace and facilities for bringing together buyers and sellers of securities” in exchange for a transaction fee.
They additionally claimed that Uniswap was similar to the maker of a self-driving car and that the protocol’s developers harmed people by designing a system that permitted fraudulent tokens, an analogy that was also rejected by the court.
“Indeed, this is less like a manufacturing defect, and more like a suit attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer,” the judge wrote.
It’s interesting to note that Judge Failla is the same judge who is presiding over the SEC case against Coinbase. She has also handled a number of cryptocurrency-related matters in the past, including one involving Tether and Bitfinex.
Lack of Clarity in The US Crypto Industry
Despite the fact that her assertion that Ether is a commodity is not conclusive about the asset’s legal classification in the US, it is consistent with recent decisions made by other courts that have addressed the issue. For instance, in July, a ruling classified XRP as a security when it’s sold to institutional investors.
Those who have the power to make a conclusive classification are the Congress which has yet to put laws in place directing on the matter. As a result of the lact of definition, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have been at odds over jurisdictional issues with cryptocurrency-related issues during the past few years.
Gary Gensler, the chairman of the SEC, has previously stated that anything other than Bitcoin is a security within the purview of his agency’s jurisdiction. The Commodity Futures Trading Commission (CFTC), meanwhile, has claimed that ETH and other cryptocurrencies ought to be considered commodities.
The jurisdiction of the two regulators can also only be defined by the law, hence Congress needs to draft and pass laws to create clarity in the US crypto industry.
