In a landmark ruling that reflects a nuanced understanding of decentralized finance (DeFi), Judge Katherine Polk Failla of the US District Court for the Southern District of New York has dismissed a class action against Uniswap Labs, its CEO, and associated venture capitalists. Six plaintiffs, representing a ‘national class of users,’ claimed to have lost money due to scam tokens on the decentralized crypto exchange. They argued that Uniswap Labs exercised control over the liquidity pools, including those where the scams occurred, making them responsible for the losses.
Legal Precedents and Contractual Complexities: Arguments and Their Rejection
The lawsuit was initiated in April 2022, seeking recission of the smart contracts and compensation under the Securities Act of 1933 and the Securities Exchange Act of 1934. The plaintiffs claimed that Uniswap’s proprietary core contracts and controlled routers facilitated transactions on the protocol. They also speculated that the defendants held the majority of Uniswap’s UNI governance tokens, though they lacked concrete evidence. Judge Failla countered these points with well-reasoned legal arguments, stating that ‘the claims would be better directed to Congress’ and citing a failed class action against Coinbase as a point of reference.
Code vs Conduct: Responsibility and Regulatory Gaps in DeFi
The judge went further in her ruling to clarify why ‘code alone cannot make a platform responsible’ for third-party abuse. She highlighted that the current cryptocurrency regulation does not provide recourse for such allegations. This dismissal with prejudice means that the case cannot be reheard.
