The SEC is investigating the startup behind one of the main bitcoin exchanges, according to people familiar with the situation.
Regulators are looking into Uniswap Labs, the company behind the world’s largest decentralized exchange, Uniswap. Enforcement attorneys are looking for information on how investors utilize Uniswap and its marketing.
An SEC representative refused to comment, claiming the agency doesn’t confirm or deny investigations. Decentralized exchanges are nodes in the rapidly rising crypto worldwide market known as DeFi.
DeFi refers to a group of projects that employ cryptocurrencies to automate financial tasks including trading and lending. Developers write the software code that allows projects to run on the Internet as protocols, which allow scattered computer networks to connect without a central server. The developers often claim they no longer control the protocols, limiting their business responsibilities.
SEC Chairman Gary Gensler says DeFi projects are not immune to regulatory scrutiny. Incentives like trading charges and digital currencies that provide holders governance rights over the software could still control them.
Uniswap Labs appears to be under civil investigation, and no legal charges of misconduct made. Decentralized exchanges (DEXs) do not have a central authority deciding which tokens can trade. Unlike a regular stock market, a DEX lets users determine what to update. Uniswap allows thousands of distinct tokens to sell.
Similarly, the trading model of Uniswap allows revenues to disperse to numerous users. Several Uniswap users earn money by contributing to asset pools that other users can trade. Contributors qualify for a portion of the fee income generated by trading on Uniswap.
Uniswap’s latest fee ranges from 0.05 percent to 1% of the total value of each deal. Uniswap’s latest version handled roughly $39 billion in deals in August, while an older version handled around $14 billion.
Uniswap trading produced over $1 billion in fees cumulatively through August, according to crypto-data firm IntoTheBlock. Its digital asset, UNI, publishes last year and offers shareholder governance rights over the system, such as voting on costs.
At current prices, all UNI tokens’ overall total equity worth in circulation is about $30 billion. About 21% of the tokens are allocated for the Uniswap Labs team and possible hires, with the remaining 18% for investors. That allotment enabled executives to possibly profit (at least on paper) as volumes increased and the worth of UNI increased.
UNI token holders agreed earlier this summer to support an academic education initiative aimed at persuading DeFi-market attendees. The voting mechanism allocated $20 million in UNI tokens to the DeFi Education Fund, which will use them to lobby Congress, do research, and vote.
Regulators will focus on transactions that promote trade and expand digital investments, according to Mr. Gensler. Some DeFi teams claim they are not governed by a central authority and hence do not need to register.