The latest regulatory issue to hit the crypto world involves the largest and oldest Decentralised Exchange (DEX) in the market, Uniswap.
Recently it was revealed that Uniswap Labs, creator of the popular Uniswap DEX, were under investigation by the US Securities and Exchange Commission (SEC).
This is no small fish. Launched in 2018, Uniswap has seen over $10 billion in weekly trading through its networks. The latest version handled an estimated volume of $39 billion in August 2021 alone.
Regulatory bodies, especially in the US, seem eager to prove that Decentralised Finance (DeFi) platforms aren’t above the letter of their law, and this is just the latest in a series of investigations being conducted into different entities worldwide.
SEC Chairman Gary Gensler previously stated that decentralisation does not insulate platform stakeholders from regulatory obligations and, in a letter to Senator Elizabeth Warren, specifically called for more authority to regulate.
According to a report by the Wall Street Journal, the investigation is focused on how Uniswap’s users trade on the platform and its marketing. The suggestion is they are avoiding local regulations with their digital asset trading.
DEXs play a huge part in crypto trading, with companies like Uniswap, 1inch and PancakeSwap quickly becoming household names in the crypto world.
DEXs allows traders to place orders and trade cryptocurrencies without an intermediary institution controlling the fund. This allows instantaneous trades at a much lower cost versus centralised exchanges, which ask users to deposit funds in exchange for what is essentially an IOU that can be cashed in and converted back to cryptocurrency.
With the freedom that DEXs provide, any assets can be listed; anybody can access the platforms regardless of location and with no real identity requirements.
But it is for exactly this reason; it would draw not only the attention of regulators looking to launder money and commit financial fraud but also the perpetrators of those crimes.
Just last month, Poloniex was fined $10 million to settle the charges levied against them for operating an unregistered cryptocurrency exchange. Further charges against Uniswap will give regulators additional ammunition needed to clamp down on DeFi even further.
It is unlikely that regulators will let DeFi platforms grow large enough for large volumes of funds to pass through their networks unmonitored. While they are conducting their investigations with a friendly face, it is a clear signal that regulators are looking to exert their authority.
Maybe by employing protocols such as KYC, DEXs can make sure they are protecting their users, taking reasonable precautions to deter financial criminals and give themselves some breathing room from regulators who seem determined to keep a close eye on what they are doing, waiting for them to slip.
This seems to be a pivotal time for the future of DEX; we can only wait to see whether or not they will move through this speed bump in the road, and move into a new era.
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