Photo credit: Ting Shen/Bloomberg

The Commodity Futures Trading Commission (CFTC) issued an order filing and settling charges against Uniswap Labs for “illegally offering leveraged or margined retail commodity transactions in digital assets via a decentralized digital asset trading protocol.”

According to the announcement on Sept. 4, the CFTC ordered Uniswap Labs to pay a $175,000 civil monetary penalty and to “cease and desist from violating the Commodity Exchange Act (CEA).”

The CFTC claimed that the leveraged tokens offered by Uniswap Labs are considered “leveraged or margined commodity transactions” that did not result in actual delivery within 28 days. 

Moreover, the CFTC asserted that Uniswap offered these leveraged tokens to retail users who did not qualify as Eligible Contract Participants (ECPs). Since Uniswap was not registered as a designated market, it was not authorized to offer these transactions to non-ECPs.

The government agency’s actions were met with criticism from the community as well as CFTC’s Commissioner, Summer K. Mersinger. Sharing her viewpoints on the matter, Mersinger claimed: 

“Using our enforcement authorities against DeFi protocols instead of providing clarity through notice-and-comment rulemaking risks driving responsible DeFi developers overseas to create businesses, jobs, and economic activity away from the United States.”

Mersinger also claimed that direct enforcement actions could leave behind the bad actors and criminals who are interested in taking advantage of American citizens.

Mersinger criticized the CFTC for penalizing Uniswap despite its efforts to address regulatory concerns. Rather than recognizing Uniswap's steps to comply with enforcement efforts by blocking certain tokens, the CFTC pursued charges covering the period before these actions were taken. 

According to Mersinger, this settlement sends a discouraging message to the DeFi community—showing that even attempts to align with the Commodity Exchange Act (CEA) and CFTC regulations come with a cost, rather than acknowledgment of good faith efforts.

Mersinger concluded by claiming that the Commission must engage in a rulemaking process around DeFi and consider CFTC’s role in promoting responsible innovation for the future of the U.S. derivatives markets.