Uniswap Legal Battle Update

The U.S. Court of Appeals for the Second Circuit ruled on Wednesday, mostly siding with a lower court’s 2023 decision to dismiss a class action lawsuit against the decentralized exchange Uniswap.

A group of investors had originally sued Uniswap Labs, the company responsible for the decentralized protocol, and some of its venture capital investors in 2022. They claimed that the company harmed investors by allowing scam tokens on its protocol.

District Court Judge Katherine Polk Failla of the Southern District of New York (SDNY) supported Uniswap in 2023, dismissing the suit before it reached trial. Judge Failla compared the plaintiffs’ arguments to trying to hold an app like Venmo or Zelle liable for a drug deal facilitated through their service.

The plaintiffs appealed Failla’s decision in September 2023 but were largely denied by the recent decision from the Second Circuit. The Second Circuit affirmed Failla’s dismissal of the plaintiffs’ claims under both the Securities Act and the Exchange Act, stating:

> “In sum, we agree with the district court that it ‘defies logic’ that a drafter of a smart contract, a piece of computer code, could be held liable under the Exchange Act for a third party user’s misuse of the platform.”

The only aspect of Failla’s ruling that was vacated and sent back to the lower court was the state law claims, which aim to pursue similar allegations under state law in New York, North Carolina, and Idaho.

This ruling is a victory for Uniswap, especially following Tuesday’s announcement that the U.S. Securities and Exchange Commission (SEC) would end its investigation into the decentralized exchange. Previously, under former SEC Chairman Gary Gensler, Uniswap was being investigated for allegedly functioning as an unregistered securities broker and exchange, along with issuing an unregistered security.

Read more: SEC Drops Investigation Into Uniswap, Will Not File Enforcement Action