The U.S. Commodity Futures Trading Commission (CFTC) has imposed a fine of $175,000 on Uniswap Labs, a decentralized finance (DeFi) protocol for breaching the law. The watchdog has accused Uniswap of providing leveraged trading to retail customers who use its decentralized digital asset trading platform.
The press release states that the CFTC has ordered Uniswap Labs to cease and desist from violating the Commodity Exchange Act. The company is said to have facilitated U.S. users to trade leveraged tokens, which the CFTC regards as an illegal retail commodity transaction.
CFTC Enforcement Director Ian McGinley stated:
Today’s action demonstrates once again the Division of Enforcement will vigorously enforce the CEA as digital asset platforms and DeFi ecosystems evolve. DeFi operators must be vigilant to ensure that transactions comply with the law.
The crux of the issue is the web interface of Uniswap which gave the traders a chance to do the swap between the different liquidity pools of the protocol. It involved some of these pools having leveraged tokens that gave access to Ether and Bitcoin among the assets.
The CFTC contends that these were transactions of no actual delivery within 28 days. Hence making them illegal for non-eligible contract participants outside of the registered exchanges.
Internal disagreement within the CFTC on Uniswap case
Nevertheless, the enforcement action has ignited internal contention across the CFTC. Commissioners Caroline D. Pham and Summer K. Mersinger issued dissenting statements, stating the agency’s approach as “regulation through enforcement” that they highly dislike.
Mersinger was particularly loud and clear about the line that the case draws between responsible DeFi developers and bad actors. She further pointed out her fear that the settlement restricts Uniswap’s attempts to follow the regulations. The company had first blocked the tokens involved in the previous CFTC settlement of the same assets.
The dissenting opinions put the regulators’ continuing dilemma of reworking the traditional financial rules to the quickly changing DeFi sector in the spotlight. While the crypto sector keeps setting new limits, the disagreement between regulators and innovators regarding properly regulating the industry will be even more pronounced.
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