CFTC fines Uniswap $175 000 for violating the Commodity Exchange Act

What’s new? The US Commodity Futures Trading Commission (CFTC) has accused leading decentralized crypto exchange (DEX) Uniswap of illegally offering leveraged retail commodity transactions in digital assets. Uniswap Labs, the developer of Uniswap, was ordered to pay a $175 000 fine and cease operations in violation of the Commodity Exchange Act (CEA).

CFTC press release

What else is known? The indictment alleges that Delaware-based and New York-based Uniswap Labs developed and deployed a protocol offering trading of digital assets on the Ethereum blockchain to users and companies in the United States and abroad that were not in the Eligible Contract Participant (ECP) category and created a web-based interface to facilitate access to the protocol.

ECP, or Eligible Contract Participant, status is awarded to investors if they meet strict criteria set forth by the Commodity Exchange Act. It allows investors to invest in markets that are inaccessible to the average investor. Corporations, trusts, and brokerage firms with multi-million dollar assets under management often have this status.

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According to the CFTC, the Uniswap DeFi protocol allows users to create liquidity pools of a pair of digital assets valued against each other and trade within them. There are hundreds of such pools on the platform, some of which stand out for offering leverage to access cryptocurrencies such as ETH and BTC.

Such pools have been the subject of discontent from officials. The regulator argues that such transactions can be available to investors without ECP status only on platforms registered with the CFTC as a contract market. Uniswap has no such registration.

The press release notes that Uniswap Labs cooperated in the investigation, and as a result, the CFTC’s enforcement division reduced the amount of the civil penalty for the offense.

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In April, the US Securities and Exchange Commission (SEC) found legal violations in Uniswap’s operations and said it was prepared to go to court.

Last August, a New York court dismissed a class action lawsuit against Uniswap filed because investors lost money on investments in scam tokens launched on the exchange by third parties.