Why the SEC Is Investigating Uniswap, Crypto Crackdown Begins

Uniswap, the world's largest decentralized crypto exchange, and its main developer, Uniswap Lab, will undergo an investigation initiated by the SEC.

Alyssa Exposito - Author

Sep. 3 2021, Published 11:41 a.m. ET

Uniswap logo
Source: Uniswap

Amid persistent and contentious crypto regulation battles, the SEC has decided to investigate Uniswap Labs. It's the main developer behind Uniswap, which is one of the world's largest cryptocurrency exchanges. Amid repeated warnings from SEC Chief of Commission Gary Gensler, the SEC aims to crack down on the use of cryptocurrencies. It decided to start with one of the more popularly used exchanges.

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Earlier this summer, many people witnessed the divide between crypto natives and politicians who have never favored cryptocurrency. The Infrastructure Bill came swinging full force. People in the crypto community were left feeling the blow of an overall lack of understanding of terms that impacts information reporting.

Gary Gensler
Source: Getty Images
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Congress has more authority to police crypto activities.

Despite formally being an educator and advocate for blockchain and cryptocurrency, Gensler is focusing on safety and laying down the law—literally. With heightened regulatory interest, it was only a matter of time before the SEC started investigating the world's largest decentralized cryptocurrency exchange. As a decentralized exchange, this implies that there isn't a central authority truly regulating trading and lending.

Source: Twitter: (@jchervinsky)
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As an open network that operates on a peer-to-peer system, transactions aren't routed to a centralized banking system. Most of the activities that occur on Uniswap like lending, exchanging, and providing liquidity function under a crypto marketplace for DeFi (decentralized finance). Platforms that operate decentrally aren't regulated by the U.S.

More Information in needed on how investors use Uniswap.

Since Uniswap is decentralized and transactions aren't routed into any centralized system, it can be difficult to trace the intentions of certain transactions. The lack of transparency and overall control anyone has over these transactions leaves the SEC unsettled. Compounded by the fact that many investors and traders in the space use tokens that aren't registered securities, this puts Uniswap in murky waters with the SEC.

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Source: Twitter: (@Uniswap)
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While Uniswap representatives weren't quick to respond to the report on the investigation, one spokesperson did make it clear that Uniswap Labs "...is committed to complying with the laws and regulations governing our industry and to providing information to regulators that will assist them with any inquiry.”

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Uniswap could ultimately fall under the purview of regulators amid all of its developments.

Launched in 2018, Uniswap has come a long way. Three versions of the platform have been released to improve the overall functionality. Hitting trading volumes of a little over 1 billion, there are massive amounts of capital circulating, which heightens the attention towards it.

screen shot    at  am
Source: UniSwap

Interestingly enough, the reports of the investigation come after the SEC announced the use of a crypto analytics company AnChain.AI. This technology will be used to provide regulators with blockchain data and technology to analyze smart contracts. While the investigation is still “in its early stages and may not produce any formal allegations of wrongdoing,” one thing is for sure. Gensler isn't stepping down in arguing that DeFi projects like Uniswap fall under the radar in terms of regulation and he's adamant against that.


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