A long-running lawsuit against Uniswap Labs, which the decentralized exchange developer allegedly held responsible for fraudulent tokens and so-called carpets traded on its protocol, ended after a federal judge dismissed the claims on Monday.
Conclusion
- Judge Kathryn Polk Failla dismissed the class action with prejudice, ruling that Uniswap could not be held liable for fraud by unknown third-party token issuers.
- The court found that offering a platform that trades tokens does not amount to substantial assistance of fraud under state consumer protection laws.
Judge Kathryn Polk Failla of the US District Court for the Southern District of New York dismissed the lawsuit with prejudice, stating that the plaintiffs cannot hold Uniswap liable for alleged fraud committed by anonymous token issuers on its protocol.
He added that Uniswap created an environment where “fraud could exist” but that was not the same as “helping to commit it”.
“Applicants essentially allege that defendants committed fraud by providing simple services that anyone could use for legitimate purposes, but that some used for illegal purposes,” Judge Faillah wrote.
The lawsuit was originally filed in April 2022 and sought to hold Uniswap Labs and its founder Hayden Adams accountable for what it described as “carpet pulling” and pump-and-dump schemes that the platform facilitated.
The dismissal follows the plaintiffs’ amended complaint filed in May, which alleges violations of consumer rights at the state level.
During a ruling in August 2023, Judge Failla stated that Uniswap could not be held liable because the allegations against the company lacked sufficient factual evidence to support liability.
Commenting on the victory, Hayden called the ruling a “good and reasonable result” that he said sets a legal precedent that writing open-source smart contract code does not make the developer liable if that code is later used for misconduct or fraud by third parties.
Similarly, others in the DeFi space, such as the founder and CEO of Aave, also celebrated the development, calling it “great for DeFi.”
Uniswap (UNI), Uniswap’s parent token, rose nearly 6% to $3.92 after the news broke, but has since fallen to $3.88 at press time.
