Looking at Uniswap and Crypto’s New Favorite Ruling

A ruling dismissing a putative class action lawsuit against Uniswap will almost definitely come up again in other lawsuits involving securities law and crypto entities.

You’re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. Click here to sign up for future editions.

The narrative

A federal judge dismissed an aspiring class action lawsuit filed against decentralized exchange Uniswap and creator Hayden Adams, saying the plaintiffs had filed against the wrong defendants and, perhaps more importantly, that federal securities laws don’t really create a clear avenue for the plaintiffs to sue the real defendants.

Why it matters

This ruling will almost certainly be cited by various parties, particularly entities and individuals facing lawsuits from the U.S. Securities and Exchange Commission.

Breaking it down

Last week’s ruling, by Judge Katherine Polk Failla, of the U.S. District Court for the Southern District of New York, dismissed allegations by a group of crypto investors hoping to hold Uniswap liable for “scam tokens” traded on the decentralized exchange.

In the judge’s words, the issuers of the tokens were really the ones responsible for the investors’ losses. The problem is, the investors can’t sue the issuers because they can’t identify them, and Uniswap does not stand in for them in light of this, she said.

“Due to the Protocol’s decentralized nature, the identities of the Scam Token issuers are basically unknown and unknowable, leaving Plaintiffs with an identifiable injury but no identifiable defendant,” the judge wrote. “Undaunted, they now sue the Uniswap Defendants and the VC 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 ruled that the smart contracts underpinning Uniswap and its liquidity pools operated in a way that did not specifically harm the investors, distinguishing them from the token issuers she is holding liable.

One of the lines everyone on the social media platform that’s recently been renamed X seemed to focus on implied that the SEC may not be the right authority to define token issuers or Uniswap’s role within…