In a filing on Wednesday, a New York judge dismissed a proposed class action lawsuit against prominent decentralized crypto exchange Uniswap and classed popular cryptocurrencies ether (ETH) and bitcoin (BTC) as “commodities”.A group of investors sued Uniswap and its founder Hayden Adams in April 2022 on the grounds that the DeFi platform had broken U.S. securities laws by failing to register as a broker-dealer or exchange and by offering and soliciting shares on an unregistered exchange.The lawsuit aimed to hold Uniswap liable for investors’ losses caused by “scam tokens” created and traded on the network. The Ethereum (ERC-20) tokens Bezoge (BEZOGE), Alphawolf Finance (AWF), and EthereumMax (EMAX) are among those mentioned in the lawsuit.
The issuers of the alleged “scam tokens” were declared to be the real defendants in the case, not Uniswap, according to Wednesday’s decision to dismiss the lawsuit before it goes to trial.Judge Katherine Polk Failla of the Southern District of New York specifically referred to ETH as a commodity and declined to “stretch the federal securities laws to cover the conduct alleged” in the case against Uniswap, in contrast to Securities and Exchange Commission (SEC) Chief Gary Gensler who has so far refrained from referring to the cryptocurrency as a security.
The court’s decision to dismiss the class action lawsuit may have an impact on future lawsuits brought against decentralized protocols and potentially even lawsuits claiming that U.S. securities laws have been broken.Additionally, Judge Polk Failla is in charge of the SEC’s case against Coinbase.
According to Judge Polk 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.
In the absence of “actual issuers” of the “scam tokens,” the plaintiffs argued that Uniswap facilitated the trades at issue by “providing a marketplace and facilities for bringing together buyers and sellers of securities” for a transaction fee, “hoping that this Court might overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least as to the specific claims alleged in this suit.”
The plaintiffs’ claim 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 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 opinion read.
Citing an absence of relevant regulation, the court concluded that the investors’ concerns “are better addressed to Congress than to this Court.”