On Aug. 30, the United States District Court for the Southern District of New York dismissed the suit against the decentralized exchange, its CEO, and its venture capital backers.
The suit was brought by six individuals who bought what they alleged were scam tokens on Uniswap between December 2020 and March 2022. The plaintiffs claimed they lost money on liquidity pools controlled and created by Uniswap smart contracts.
The class action was filed in April 2022 with plaintiffs demanding compensation under the 1933 Securities Act, the same legislation the SEC has used to target crypto companies.
Uniswap Case Dismissed
However, Judge Katherine Polk Failla stated that neither Uniswap nor the plaintiffs knew the identities of the scammers who issued the fake tokens. Moreover, it is the same judge that is presiding over the SEC vs. Coinbase case. More interestingly, the judge also said that Ethereum is a commodity, not a security.
Putative Uniswap class action dismissed by Judge Failla in SDNY. Among other things, challenges notion that software platform can be held liable for damage caused by third party misuse of software code. pic.twitter.com/8wvsXmtlrR
— Palley (@stephendpalley) August 30, 2023
The judge said that the case had nothing to do with securities laws.
“The Court declines to stretch the federal securities laws to cover the conduct alleged, and concludes that Plaintiffs’ concerns are better addressed to Congress than to this Court.”
Observers and industry advocates commented that this shows a deep understanding of the decentralized finance (DeFi) ecosystem. Partner at Brown Rudnick, Stephen Palley, commented:
“This isn’t a case about products liability or negligence, but touches on some of the same issues: forseeabilty of harm, responsibility for third party misuse and third party damage.”
He added that this and similar cases will become a major point of legislation in the coming decade.
ConsenSys lawyer Bill Hughes said:
“This is big. I’m still digesting the decision, but this more directly impacts the application of current securities laws to DeFi than the Ripple or TerraForm Labs cases.”
“The fact that Uniswap created the platform on which the scam token issuers perpetrated their scheme does NOT make Uniswap responsible for the fraud and resulting injury, and least under US securities laws,” he added.
🚨🚨🚨The SDNY yesterday threw out a class action complaint against @Uniswap alleging that they were responsible for plaintiffs being harmed in a rug pull engineered by scam token issuers.
Risley v. Uniswaphttps://t.co/pP8AJ9eWag
This is big. I’m still digesting the… pic.twitter.com/iWDA3VpzM4
— Bill Hughes : wchughes.eth 🦊 (@BillHughesDC) August 30, 2023
Uniswap is awash with fake tokens, but being a decentralized protocol, it cannot be found at fault or responsible for them.
UNI Price Outlook
Uniswap token prices did not react positively to the news, dropping a further 3% on the day. As a result, UNI was trading at $4.62 at the time of writing.
The DEX token has lost 15% over the past fortnight and remains 90% down from its May 2021 all-time high of $44.92.
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