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Coinbase Steels Itself After US Court Kicks Out Class Action Lawsuit Against Uniswap

A US District Court in New York has thrown out a class action lawsuit instituted against decentralized virtual currency exchange Uniswap on the grounds that the plaintiffs failed to submit evidence that it had broken securities rules.

In April 2022, a group of disgruntled investors alleged that Uniswap operated as an unregistered broker, listing unregistered securities that led to losses for the platform’s users. The plaintiffs pointed to the listing of failed projects, including EthereumMAX (EMAX), Alphawolf Finance (AWF), and Bezoge (BEZOGE), as proof of Uniswap’s wrongdoing.

However, Judge Katherine Polk Failla dismissed the case, noting that the aggrieved investors ought to seek redress from the issuers of the tokens, rather than Uniswap. The judge noted that token issuers are the true defendants in the matter but their pseudo-anonymous nature leaves the defendants in a “dilemma” in pursuing reliefs.

“In a perfect world, plaintiffs would be able to seek redress from the actual issuers who defrauded them,” said Judge Failla. “In the absence of such information, plaintiffs are left to argue that Uniswap Labs facilitated the trades at issue.”

The judge rejected the plaintiff’s argument stating that the fact that Uniswap charged transaction fees and had a governance token was insufficient to make them liable for the actions of token issuers.

In her judgment, she declined to extend federal securities laws to Uniswap, urging aggrieved individuals to turn to Congress for relief as she pointed to a lack of judicial precedent regarding decentralized finance (DeFi).

The judge submitted that Uniswap’s smart contracts were not designed with illicit intent, noting that the crux of the matter revolves around the code for liquidity pools created by token issuers.

“Indeed, this is less like a manufacturing defect and more like a suit attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer,” said Judge Failla.

Coinbase watches with keen eyes

Judge Failla’s decision to avoid extending securities laws in Uniswap’s case has been construed as a small win for Coinbase, the largest exchange in the US. The exchange is currently embroiled in a legal battle with the Securities and Exchange Commission (SEC) for allegedly operating as an unregistered securities exchange.

The plot thickens, with both parties expected to appear before Judge Failla in the coming weeks to begin their legal duel. Pundits have noted that Judge Failla’s decision to refer to Ethereum (ETH) as a commodity in her Uniswap ruling is worthy of note.

Coinbase stock has surged following a recent ruling by a federal court against the SEC over its handling of Grayscale’s attempt to convert its Bitcoin (BTC) trust into an exchange-traded fund (ETF). 

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