“The Court declines to stretch the federal securities laws to cover the conduct alleged and concludes that plaintiffs’ concerns are better addressed to Congress. These foundational contracts are distinctive from the token contracts unique to each pool and drafted by issuers. The contracts relevant to Plaintiffs’ claims are not these overarching codes provided by Defendants, but rather the pair or token contracts drafted by the issuers themselves.” 

The tokens in question included Matrix Samurai (MXS), Rocket Bunny (BUNNY) and Alphawolf Finance (AWF). Judge Failla said the plaintiffs’ “dilemma” is the pseudo-anonymous nature of those token issuers, not Uniswap. 

“In a perfect (or at least, a more transparent) world, plaintiffs would be able to seek redress from the ac tual issuers who defrauded them,” she wrote. “In the absence of such information, plaintiffs are left to argue that [Uniswap Labs] facilitated the trades at issue.” 

Judge Failla found that Uniswap’s ability to charge transaction fees, among other aspects such as governance token, wasn’t convincing enough to find the exchange’s associates liable. 

“The Court declines to stretch the federal securities laws to cover the conduct alleged, and concludes that plaintiffs’ concerns are better addressed to Congress,” she wrote. 

Judge Failla’s decision said that smart contracts underlying the exchange’s core functions should be viewed separately from code underpinning liquidity pools, which are drafted by token issuers and enable newly created tokens to trade. 

“These foundational contracts are distinctive from the token contracts unique to each pool and drafted by issuers,” Judge Failla wrote. “The contracts relevant to Plaintiffs’ clauses are not those overarching codes provided by Defendants, but rather the pair or token contracts drafted by the issuers themselves.” 

The lack of case law surrounding DeFi protocols was acknowledged by Falia, who said, “No court has yet decided this issue in the context of a decentralized protocol’s smart contract.” 

Still, she went on to say that Uniswap’s core smart contracts were not inherently illicit and, regarding other coins, “were themselves able to be carried out lawfully, as with the exchange of crypto commodities ETH and Bitcoin.” 

Judge Failla put forth the payment apps Venmo and Zelle as part of an analogy. She said the plaintiff’s lawsuit would be equivalent to trying to hold those companies liable for a drug deal that tapped their platform to facilitate the transfer of funds, instead of the drug dealer. 

The lack of clarity surrounding how securities laws apply to DeFi was noted by Judge Failia, referencing a warning from Securities and Exchange Commission Chair Gary Gensler in September 2021 that the class of projects “were under increased scrutiny.” 

“Whatever concerns DeFi transactions engender, the law is currently developing around these exchanges,” she wrote.”Regulators may someday address this gray area.” 

The class action lawsuit, in addition to bringing federal law claims, sought to pin down Unisewap on laws in North Carolina, Idaho, and New York. Those claims, unlike ones brought under federal laws, were dismissed without prejudice, meaning that the lawsuit could resurface in those jurisdictions.