Regulate Who? The Weird Legal World of DeFi - DeFriday #11

Who do you regulate when no one runs the bank? 

Last week Uniswap, one of the most popular decentralized exchanges on Ethereum, mysteriously decided to remove access to 100+ tokens on the main user interface to their exchange. 

Some of the removed tokens were ones with bugs in their code, but most of them were tokens that might bring Uniswap under some legal risk. Specifically: tokens representing TradFi derivatives like options, stocks, commodities, and foreign currencies.

Uniswap didn’t say they received a letter from the SEC, but the community suspicion is that they were either contacted by someone and suggested to remove these kinds of tokens, or they were staying in the loop with discussions going on in Washington around crypto regulations and decided it was prudent to preemptively delist this class of tokens. Either way, it’s one of the first times the US Government has influenced decision making of a major DeFi company. 

The community didn’t love it, and there were plenty of memes and jokes about “new boss same as the old boss,” but the token de-listings also didn’t particularly matter. Within a few hours, community members had launched new versions of Uniswap’s website, reinstating access to the banned tokens.

If you still want to buy some Synthetic Tesla Shares, all you need to do is go to https://uniswap.eth.link/ or https://uniswap.ninja/ or any of the other mirror sites launched by the community and you can trade them just fine.

This is where we start to see the “decentralized” part of DeFi really come into play, and how odd of a challenge regulators are going to have. If the SEC wants the NYSE to remove a company from their exchange, it’s not like 17-year-old Kyle in Minneapolis can re-launch the NYSE in-between Biology and soccer practice. But he can re-launch Uniswap. 

The Two Layers to DeFi