Uniswap Exchange Developers Are Facing A Lawsuit: Here’s Why

The developers and venture capital backers of Uniswap, a decentralized exchange are facing a class-action lawsuit. The lawsuit accuses the Uniswap team of allowing users to list and trade tokens freely. The creators are alleged for “rampant fraud on the exchange,” and would have to register as a broker-dealer with FINRA or the Financial Industry Regulatory Authority.

The lawsuit is filed by a North Carolina resident named Nessa Risley in the Southern District of New York. The plaintiff claims to buy approx. $8,545 worth of obscure ERC-20 tokens through Uniswap in May and June of the last year.

According to the lawsuit, “Uniswap has offered and sold unregistered securities.” As a result, the groups and individuals that have created and funded the software that aided the operations of the exchange owe restitution to the users of Uniswap.

The creator of Uniswap, Hayden Adams is mentioned as a defendant in the suit as well as the company he founded, Navigation Inc., earlier called Uniswap LLC. Paradigm, Andreessen Horowitz, and Union Square Ventures are other defendants

None of the defendants have made any comments on the matter.

The reason behind the involvement of venture firms is their holding equity stakes in Adams’ company. Besides they also act as liquidity providers in Uniswap pools, earning fees from trades conducted on the platform.

The company later raised $11 million from equity sales, options, and warrants from the other VC firms.

As per an SEC filing, Universal Navigation provided funds worth $1.8 million as equity shares in Adams’ company and Paradigm in 2019. Later, for other firms, the firm raised $11 million from equity sales, options, and warrants to the other VC firms

The suit seemed to confuse the Uniswap protocol, a set of immutable smart contracts on the Ethereum blockchain, with the front-end user interface at app.uniswap.org, in many instances.

However, no one can control the Uniswap protocol, be it Adams or Paradigm since they are not upgradeable and which allow the unfettered creation of liquidity pools for Ethereum-based tokens.

As per the data from Dune Analytics, Uniswap now has an average trading volume of approximately $1.79 billion per day.

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Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing