Uniswap founder Hayden Adams hails 'based' scam tokens ruling

Quick Take

  • Uniswap founder Hayden Adams hailed the court’s comments as “based” after a class action lawsuit alleging liability for scam token sales was thrown out.
  • Judge Katherine Polk Failla dismissed the case, ruling that software cannot be held accountable for user losses or third-party damages.

Uniswap founder Hayden Adams hailed comments from U.S. Southern District of New York Judge Katherine Polk Failla as "based" after a class action lawsuit alleging liability for scam token sales on the decentralized exchange was thrown out.

Judge Failla, who is also presiding over the Securities and Exchange Commission's case against Coinbase, dismissed a class action lawsuit in full against Adams, Uniswap Labs, the Uniswap Foundation and investors Paradigm, Andreessen Horowitz and Union Square Ventures. Judge Failla ruled that software cannot be held accountable for user losses or third-party damages, according to a filing on Tuesday.

"Due to the protocol's decentralized nature, the identities of the scam token issuers are basically unknown and unknowable, leaving Plaintiffs with an identifiable injury but no identifiable defendant," Judge Failla stated.

Highlighting several comments from the court, Adams said on Wednesday it was "highly motivating to see U.S. courts hold up arguments I’ve felt deeply for years." Among these was the court’s statement that "it defies logic that a drafter of computer code underlying a particular software platform could be liable for a third-party's misuse of that platform [as] smart contracts are self-executing, self-enforcing code," and that "the current state of cryptocurrency regulation leaves them without recourse."

Adams also pointed out the court's comment that the Plaintiffs' concerns were better addressed to Congress, that cases in this area typically concern lawyer and underwriter roles that decentralized exchanges were designed to eliminate and "the Court sees merit in Defendants' counterpoint that this case is more like an effort to hold a developer of self-driving cars liable for a third party’s use of the car to commit a traffic violation or to rob a bank."

"Overall I'm extremely happy to see how thoughtful some courts have been recently with regards to DeFi and crypto. DeFi is here to stay," Adams concluded.

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The initial complaint, filed in April 2022, accused the defendants of facilitating "rampant fraud" on the decentralized exchange and "offered and sold unregistered securities." The plaintiffs had also demanded that Uniswap register with the Financial Industry Regulatory Authority.

Key takeaways from the ruling

The court drew a distinction between a protocol and its interface. Uniswap is a decentralized exchange protocol that anyone can access in a permissionless way. Developer Uniswap Labs operates a front-end website interface, which serves as a user-friendly gateway to the underlying protocol.

As Adams highlighted, the court also declined to "stretch" federal securities laws, suggesting that such expansions are the domain of Congress. The ruling also set a precedent by asserting that code developers shouldn't be held responsible for its misuse by others, adding that liquidity providers don't necessarily forfeit legal title when contributing to a decentralized exchange pool.

 


© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

About Author

James Hunt is a reporter at The Block, based in the UK. As the writer behind The Daily newsletter, James also keeps you up to speed on the latest crypto news every weekday. Prior to joining The Block in 2022, James spent four years as a freelance writer in the industry, contributing to both publications and crypto project content. James’ coverage spans everything from Bitcoin and Ethereum to Layer 2 scaling solutions, avant-garde DeFi protocols, evolving DAO governance structures, trending NFTs and memecoins, regulatory landscapes, crypto company deals and the immersive metaverse. You can get in touch with James on Twitter or Telegram via @humanjets or email him at [email protected].

Editor

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