Uniswap Labs, the developer of one of the largest decentralized trading platforms, is questioning potential enforcement action by the U.S. Securities and Exchange Commission (SEC), arguing that crypto tokens should not be classified as securities.

The Novel York-based company recently denied allegations that it operated as an unregistered exchange and broker-dealer. This response follows the SEC’s announcement Wells note to Uniswap Labs, signaling its intention to recommend legal action against the company.

Uniswap Labs disputes the SEC’s claims

IN 40-page application submitted to the SEC, Uniswap Labs provided numerous reasons why the agency should reconsider legal action. The SEC’s claims are based primarily on the assumption that all tokens are securities, an assumption disputed by Uniswap Labs.

Marvin Ammori, Chief Legal Officer of Uniswap Labs, he emphasized that tokens are only a value file format and not securities. He criticized the SEC’s attempt to redefine the terms “exchange,” “broker” and “investment agreement” to cover Uniswap’s activities.

This year, the SEC has taken action against a number of crypto companies through notices, lawsuits, or Wells settlements.

Committee observation is increasingly focused on Ethereum and decentralized finance players including Uniswap, ShapeShift, TradeStation and Consensys. Additionally, reports suggest that the Ethereum Foundation is under investigation.

The distinction between tokens and securities

Uniswap Labs he believes that the SEC’s complaint against them is wrong. It does not recognize the distinction between tokens as files of value and tokens as securities.

If the SEC files a lawsuit accusing Uniswap Labs of operating as an unregistered exchange, it risks adverse consequences due to its authority over crypto tokens.

Uniswap Labs warned that such litigation could set a precedent undermining the SEC’s ongoing rulemaking efforts. The company expressed its willingness to initiate legal proceedings if necessary and expressed confidence in a positive outcome, stating:

But we are ready to fight. Our attorneys have a 2-0 record in high-profile SEC cases. Andrew Ceresney, former head of SEC enforcement, represented Ripple in its victory over the SEC. Don Verrilli, a former U.S. attorney general, argued more than 50 cases before the U.S. Supreme Court and represented Grayscale in a successful case against the SEC.

SEC Chairman Gary Gensler has consistently maintained that decentralized exchanges are not actually decentralized and should fall under the purview of the regulator.

Gensler too he argued that many digital assets qualify as unregistered securities subject to SEC regulations. In its response, Uniswap Labs said its governance token, UNI, did not meet the requirements of the Howey test, a legal framework used to evaluate investment contracts.

The company also questioned the SEC’s classification of LP tokens that are used as liquidity-providing securities in Uniswap pools. Uniswap Labs has stated that LP tokens are accounting tools rather than investment instruments.

The native Uniswap UNI token has been seen significant profits by almost 20% in the last 24 hours alone as the market rebounded from a two-month consolidation period to trade at $9.34.

Featured image from Shutterstock, chart from TradingView.com