Tech
The SEC’s pending lawsuit against Uniswap is bad policy
It wasn’t supposed to be like this. The Securities and Exchange Commission reported Wednesday will sue Uniswap, the leading company in the rapidly evolving cryptocurrency field known as DeFi. This is disappointing not only because the SEC is on shaky legal ground, but because the agency risks stifling for years one of the most intriguing new technologies emerging in finance.
If you’re not familiar, DeFi (decentralized finance) provides a new twist to the age-old model of trading and brokerage business. Instead of relying on a centralized authority to arrange a transaction, buyers and sellers trade directly with each other on a platform that provides an automated market maker tied to so-called liquidity pools. The technology is new enough that it’s difficult to summarize it in a few words (CoinDesk has a good explainer), but the key point is that DeFi makes it possible to trade in a faster, safer and more efficient way than ever before.
Like many other new technologies, DeFi has many problems, most notably hacks, scams, and a plethora of scoundrels like the guy from Mango Markets I. I wrote about it on Tuesday. The underlying technology, however, is legitimate. Traditional publications such as The Economist and the Wall Street Journal have touted its long-term promise, and I regularly meet people from the world of traditional finance who predict that DeFi-style platforms will challenge a number of legacy applications in the coming years.
Meanwhile, the flagship DeFi company is the antithesis of a shady offshore crypto firm. Uniswap’s corporate office is located in the middle of SoHo in Manhattan, and its COO is a Harvard Law graduate who spent years working at BlackRock and Goldman Sachs. Its founder and CEO is a soft-spoken and widely respected computer scientist who developed the Uniswap protocol after being fired from Siemens. This is exactly the kind of cutting-edge startup that should be hailed as a success story in the United States.
Unfortunately, as is often the case with new technologies, Uniswap and other DeFi platforms do not fit neatly into existing regulatory models. And while regulators and Congress would once have worked to craft new laws to promote it, as they did 25 years ago in response to the Internet, the SEC is instead trying to stifle DeFi as part of a larger ideological campaign to crush cryptocurrencies. In this case, however, the agency may have chosen the wrong battle given that Uniswap is an honest operation with a deep war chest argue. The legal battle will likely take years and serve to slow the evolution of a promising new technology. What a shame it has to be this way.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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MEME OF THE MOMENT
Vitalik is wearing a Uniswap t-shirt c. 2017:
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