Uniswap Cites Supreme Court to Challenge SEC's DeFi "Exchange" Definition

Uniswap has strongly urged the US Securities and Exchange Commission (SEC) to abandon its attempt to include decentralized finance (DeFi) markets in its definition of an "exchange."

In a letter on 9 July, Uniswap cited a recent Supreme Court ruling on the Chevron doctrine, stating that the regulator could no longer use the “Chevron deference” to exert its power over the crypto industry.

The 40-year-old Supreme Court doctrine allowed administrative agencies such as the SEC flexibility to interpret laws that Congress had left ambiguous. On 28 June, the Supreme Court issued a landmark decision to overturn the Chevron doctrine.

“For better or worse—the Commission will not be able to claim the benefit of Chevron deference to defend its aggressive and atextual interpretation of its statutory authority,” said Uniswap.

“There is no reason to spend the Commission’s limited resources on that issue, or to force the industry to do the same.”

Uniswap is a decentralized cryptocurrency exchange (DEX) that operates on the Ethereum blockchain. It allows users to trade various Ethereum-based tokens directly with one another without the need for an intermediary. Uniswap uses an automated market-making (AMM) system, which involves liquidity pools rather than traditional order books, enabling continuous trading and liquidity provision.

Uniswap had already criticised the SEC's attempt to broaden its definition of an exchange back in June but now, without the Chevron doctrine, the SEC's proposal demands a much stricter interpretation of the law to gain authority over the crypto markets.

“If the Commission moves forward with its proposed amendments, a reviewing court “exercis[ing] independent judgment in determining the meaning of [the Exchange Act’s] provisions” is certain to conclude that the Commission’s interpretation of the Exchange Act stretches the statutory text too far,” Uniswap argued.

Katherine Minarik, Uniswap’s chief legal officer, emphasised on X the Supreme Court's rejection of the Chevron deference. "For better or worse, the Supreme Court has rejected Chevron deference. The SEC’s proposal was flawed even with that deference — and it’s all the more so under today’s standard," she said.

In April, Uniswap received a Wells Notice from the SEC. Uniswap responded by saying the SEC's legal arguments are "weak" and have been "refuted" by courts.

"The SEC’s aggressive theories are an effort to expand its jurisdiction beyond exchanges to communications technology – and beyond securities to all markets," Uniswap stated.

A Wells Notice, which is usually sent ahead of launching a formal lawsuit. Coinbase and BUSD issuer Paxos are among the increasing list of crypto firms that have received such notices.

Uniswap Labs received a Wells Notice from the SEC in April warning that the DEX creator may be violating U.S. securities laws by operating an unregistered securities broker-dealer through its app interface.

Uniswap issued a 40-page response one month later claiming that the SEC was stretching the definitions of securities, exchanges, and contracts.