Judge Scraps Lawsuit against Uniswap, Calls Ethereum a Commodity

United States District Court judge for the Southern District of New York, Katherine Polk Failla, who is also hearing the lawsuit of the Securities and Exchange Commission (SEC) against Coinbase, has recently dismissed a class-action suit against Uniswap Labs and its CEO, foundation and venture capital backers.

US Judge Favours Crypto

Six crypto investors filed a class action lawsuit against the decentralized cryptocurrency exchange in April 2022 after falling victim to a scam. They purchased scam tokens on Uniswap between December 2020 and March 2022.

The plaintiffs argued that UniSwap Labs controlled its liquidity pools of the protocol, including the ones created by the scammers, adding that Uniswap held “liquidity provider funds and newly created tokens in Uniswap’s proprietary core contracts.” They further claimed that Uniswap is “likely” to hold 88 percent of the governance token on the protocol without any evidence.

With the lawsuit, the plaintiffs were seeking recission of the (smart) contracts they entered into to buy the scam tokens, along with compensation.

“Undaunted, they now sue the Uniswap Defendants and the VC [venture capital] Defendants, hoping that this Court might overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least as to the specific claims alleged in this suit,” the Judge stated.

“[I]t defies logic that a drafter of computer code underlying a particular software platform could be liable under Section 29(b) [ of the Exchange Act] for a third-party’s misuse of that platform.”

The Judge further added: “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.”

Ethereum Is a Commodity

While passing her written comments, Judge Failla termed Bitcoin and Ethereum as “crypto commodities.” She added that she was not convinced that Uniswap’s token sales could be covered under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The status of Ethereum as a security or a commodity is highly debated. Earlier, the SEC’s Chair, Gary Gensler said that every cryptocurrency, other than Bitcoin, is a security and falls under the purview of his agency. However, the Commodity Futures Trading Commission (CFTC) maintained that Bitcoin and Ethereum are commodities.

Judge Failla is overseeing the lawsuit of the SEC against Coinbase, which alleged that the crypto exchange listed several unregistered tokens. On top of that, she previously heard the lawsuit against Tether and Bitfinex.