Uniswap Labs, the main developer of one of the world’s largest cryptocurrency exchanges, is under investigation by the Securities and Exchange Commission (SEC).
The Wall Street Journal reported on the probe Friday (Sept. 3), citing information from unnamed sources close to the matter that SEC enforcement attorneys are examining how the exchange is marketed and used by investors.
A spokesman for Uniswap Labs said the company is “committed to complying with the laws and regulations governing our industry and to providing information to regulators that will assist them with any inquiry.” The SEC declined to comment.
The story notes that the civil investigation into Uniswap is in its initial stages and may not yield any claims of wrongdoing.
Exchanges like Uniswap are part of the growing decentralized finance —or DeFi — marketplace. DeFi refers to not only cryptocurrencies, but also various types of accounts for saving or transmitting funds along with exchanges and derivative markets.
Last month, SEC Chairman Gary Gensler said his agency has its eye on DeFi but still needs to develop a regulatory framework. Gensler said some DeFi schemes have the characteristics of systems that would fall under the SEC purview.
He said that the decentralized aspects suggested by DeFi are “a bit of a misnomer” because some parts of the transactions are actually “highly centralized.”
Developers have argued that DeFi transactions operate automatically, which means oversight authority is not needed. And while the SEC has acknowledged that some cryptocurrencies are decentralized enough to avoid monitoring, when participants are given incentives, that crosses over into territory within its oversight.
“There’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees,” Gensler said. “There’s some incentive structure for those promoters and sponsors in the middle of this.”
Earlier this week, Gensler said the crypto market has grown large enough — to the tune of $2.1 trillion — that it needs regulation in order to survive. Without a regulatory framework, he said, the crypto sector could lose public trust.