Uniswap Wins In Court, Setting a Precedent for DeFi

A federal court has ruled that Uniswap, the largest decentralized exchange, cannot be held liable for scam tokens traded on its platform. The decision, now upheld on appeal, reinforces the legal distinction between protocol developers and platform misuse, setting a precedent for DeFi regulation

Rebecca Denton

Feb 28, 2025 - 2 min read

Decentralized Exchange Is Not Liable for the Tokens Traded

On February 26, 2025, the U.S. Court of Appeals for the Second Circuit upheld the previous ruling of U.S. Southern District of New York, dismissing the claims against Uniswap under the class action lawsuit.

The Uniswap class action lawsuit was a legal case filed in April 2022 against Uniswap Labs, its founders, and VC backers. The lawsuit accused Uniswap of not adequately screening or regulating the tokens being traded, enabling bad actors to scam investors, and also failing to register as a broker-dealer. The lead plaintiff, Nessa Risley, an individual investor from North Carolina, alleged that she lost money trading scam tokens on Uniswap.

Uniswap denied liability, stating that as a decentralized protocol, it does not directly control which tokens are listed or traded.

In August 2023, a judge dismissed the case, ruling that Uniswap Labs could not be held responsible for scam tokens on the platform. The court compared Uniswap to a regular stock exchange, arguing that investors should pursue action against the issuers of fraudulent tokens, not the exchange itself.

Following the dismissal of the class action lawsuit against Uniswap Labs, the plaintiffs appealed the decision to the U.S. Court of Appeals for the Second Circuit, which has now affirmed the dismissal of the claims.

The Second Circuit largely upheld the lower court's ruling, affirming the dismissal of claims under the Securities Act and the Exchange Act.

Strong Precedent In Favor Of DeFi Code Developers

The ruling in the Uniswap case specifically says that "a drafter of a smart contract, a computer code, could not be held liable [...] for a third party user's misuse of the platform.“

Uniswap founder and CEO Hayden Adams said the case could set a strong legal precedent.

Due to its permissionless nature, Decentralized Finance (DeFi) project teams face higher risks of their product misuse. One of the most significant cases potentially impacted by this ruling is the Tornado Cash case, in which the developers of crypto mixers are being held accountable for money laundering activities conducted through the platform.

U.S. SEC Drops Case Against Uniswap

In another significant victory for DeFi, on February 24, the SEC dropped its investigation into Uniswap Labs. The SEC had initially accused Uniswap of operating as an unregistered broker and issuing unregistered securities, but the case has now been closed without any action after a year-long probe.

In April, the SEC issued a Wells notice claiming that Uniswap Labs operated as an unregistered broker, operated an exchange, and issued an unregistered security

As of yesterday, that investigation has officially been closed, and the SEC is taking no enforcement action

This is a…
— Uniswap Labs 🦄 (@Uniswap) February 25, 2025

The decision reflects a broader shift in the regulator's approach under new leadership with the SEC also dropping cases against Coinbase, Opensea, Robinhood, and Consensys.

Hayden Adams welcomed the move, saying, "I look forward to working with Congress and regulators to help create rules that actually make sense for DeFi – encouraging innovation, improving transparency and access to financial markets, and ensuring that this technology can thrive in the US, instead of being pushed offshore."

Uniswap' UNI token experienced a slight increase, despite overall downward trend in the crypto market, trading above the $8 mark on February 26. Despite ongoing market challenges, Uniswap continues to innovate, recently launching its v4 upgrade and its Unichain mainnet.