Uniswap is being sued for offering and selling digital tokens without being registered

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Uniswap, a DeFi behemoth, is accused of marketing unregistered securities and neglecting to warn its customers about the dangers involved.

Between May and July of last year, Nessa Risley, a Uniswap user from North Carolina, invested around $10,400 in low-cap digital tokens like EthereumMax, Matrix Samurai, and Rocket Bunny. Since then, the trader has suffered “significant losses,” prompting him to seek legal redress.

Risley filed the lawsuit on April 4th, stating that Uniswap failed to conduct identification checks and apply securities limitations on “fraudsters” who utilize the platform to advertise scam-like digital tokens to commit widespread fraud.

Uniswap is being investigated for unregistered marketing securities

Two US law firms have sued Uniswap and its backers, including well-known venture capital companies like A16z and Paradigm, for breaking securities laws by issuing and selling securities in the form of digital tokens.

The case, filed by Kim & Serritella LLP and Barton LLP, seeks to bring victims like Risley, who have lost money on Uniswap since last April, into a class-action lawsuit against the platform’s founders and developers. It alleged that Uniswap neglected to provide “registration statements,” which included information about the risk of the assets they were offering to consumers.

Uniswap Labs has also been accused of allowing illegal practices such as “pump and dump” and “rug pulls” to take place on its platform, according to the class action. According to the statement, one of the primary claims is that the DEX’s pricing structure encourages fraud by giving liquidity providers a percentage of the cost for each trade.

Meanwhile, Uniswap receives developer fees and can keep a portion of those payments for itself. Because of the competing interests, Uniswap might be seen as a quiet enabler of fraud.

The SEC is interested in Uniswap

The case mentioned above isn’t the first to question DeFi technologies‘ decentralized nature. In January, a software developer called Joseph Kent filed a legal challenge against PoolTogether, a gamified crypto savings protocol. Kent stated that the network’s practice is effectively a type of lottery illegal under New York law.

The SEC launched an inquiry into Uniswap Labs in September of last year to determine how consumers used the exchange, advertised, and how it worked in general. Gary Gensler, the Securities and Exchange Commission chairman, has previously expressed concerns about DeFi protocols, which he thought may be classed as the sorts of companies the Commission regulates.

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