Uniswap Labs Settles CFTC Charges Over ‘Illegal’ Margin Products

Uniswap Labs will pay $175,000 to settle charges it offered illegal leveraged and margined commodities transactions, the U.S. Commodity Futures Trading Commission announced Wednesday.

Uniswap developed a user interface and a set of smart contracts that let users trade tokens on the platform, the CFTC said. This included tokens developed by third parties – meaning people who don’t work for Uniswap – that exposed investors to margined or leveraged returns against the price of bitcoin (BTC) and ether (ETH).

“During the Relevant Period, the digital assets traded on the Protocol through the Interface included a limited number of leveraged tokens, which provided users approximately 2:1 leveraged exposure to digital assets such as ether (ETH) and bitcoin (BTC), both commodities in interstate commerce,” a CFTC filing said.

Uniswap did not register as a designated contract market with the CFTC, and was not allowed to offer leveraged trading products as a result, the CFTC said.

CFTC Commissioner Summer Mersinger dissented with the application of rules intended for centralized platforms to decentralized ones.

“This case has all the hallmarks of what we have come to know as regulation through enforcement: A settlement with a de minimis penalty that bears little relationship to the conduct alleged, sweeping statements about the broader industry that are not germane to the case at hand, and legal theories that have not been tested in court,” she said, in a public statement shared alongside the CFTC’s press release.

Uniswap took steps to try and block users from trading leveraged tokens, Mersinger said.

Fellow CFTC Commissioner Caroline Pham also dissented, saying in a statement that the administrative record did not confirm whether the leverage tokens actually offered leverage, and criticizing the regulatory agency’s approach to the enforcement action.

“I must dissent on the basis that this administrative proceeding is both legally unsupported under the CEA and is a violation of the APA, in addition to the serious public policy concerns that this settlement order will create further regulatory uncertainty, put small cash market businesses in jeopardy of violating the law, and stifle American innovation,” she said.

Uniswap Labs is also facing a potential enforcement action from the Securities and Exchange Commission. The company said it received a Wells Notice in April, indicating the SEC believes it has enough evidence to start a lawsuit.

In a statement, Uniswap Chief Legal Officer Katherine Minarik said, “today Uniswap Labs resolved a CFTC investigation, about a small fraction of a percent of trading through our interface related to a handful of tokens, for a $175k fine in a standard no admit-no deny settlement. We remain singularly focused on building the future of DeFi for everyone and taking on the fights necessary to make that happen.”

UPDATE (Sept. 5, 2024, 02:02 UTC): Adds Uniswap, Pham statements.