Bigger Than The XRP Win? Uniswap Triumphs Over “Scam Tokens” Accusations

Another significant crypto entity scored a victory in the US legal system as Ethereum-based crypto exchange Uniswap won a class action. The legal battle was fundamental for the platform as it could have set a dangerous precedent for the nascent industry.

Uniswap Scores Victory And Draws Important Line For DeFi

Nessa Risley, James Freeland, Robert Scott, and others filed the class action lawsuit against Uniswap Labs, its founder Hayden Adams, and Paradigm, seeking to establish a direct link of responsibility between the defendants and “scam tokens.”

In other words, Uniswap users were trying to hold Adams and the company responsible for losing money on the crypto exchange. Therefore, plaintiffs sought monetary compensation by arguing that the company and investors backing Uniswap created a system “that could allow for the Scam Tokens” to hurt them.

District Judge Katherine Failla for the Southern District of New York dismissed the case. According to legal expert Stephen Palley, the court decided that software, in this case, the crypto exchange, cannot be held accountable for the losses of its users or the damage caused by third parties.

Palley claims that this case, and similar cases, will become a major point of legislation in the coming decade. The rise of Artificial Intelligence and Decentralized Finances (DeFi) is bound to face the US legal system with unexplored territory.

The legal expert stated the potential consequences for crypto developers and Uniswap-like projects:

I predict much of this will ultimately be the subject of legislation, but common law decisions will lead the way to start … Also, I wouldn’t take this case to mean that developers on a blanket basis can expect to be protected from third party claims — it’s really gonna depend on facts and circumstances.

XRP And Uniswap’s Decision Set Major Precedents

Consensys lawyer Bill Hughes believes this decision will have more legal implications than the decision in the XRP case. The lawyer agrees with Palley that the decision states that the crypto exchange cannot be responsible for users losing money due to a third-party-issued token.

In theory, this decision favors truly decentralized protocols, but the legal road ahead is long, as Palley believes. Hughes added:

The court notably found that (i) the Uniswap platform was capable and indeed was being in many instances used lawfully; (ii) there were not transactions between the plaintiffs and the Uniswap platform/protocol lab; and (iii) current securities laws seemingly do not reach the liability of the defi protocol itself for the actions of people using it to defraud others.

Cover image from Unsplash, chart from Tradingview