This week, the Commodity Futures Trading Commission (CFTC) took notable action against Uniswap Labs, raising more questions than answers. This follows a series of CFTC enforcement actions against software developers Opyn, 0x, and Deridex from last fall. In all these cases, the targets settled and paid fines rather than contesting in court. Consequently, none of these actions leaves a binding precedent or offers regulatory clarity. The uncertainty is particularly damaging because all these enforcement actions implicate the rights of individuals to write and publish code—whether in the form of a cryptocurrency protocol or a front-end user interface.
This area involves complex statutory authority given the breadth and vagueness of relevant Commodity Exchange Act (CEA) provisions. While that authority has been clarified for traditional activities, much uncertainty remains concerning crypto. These actions raise significant concerns about their potential chilling effect on core American liberties related to developing cryptocurrency protocols and their interfaces, as well as the lack of clear guidelines by regulators on what is permitted going forward.
This week’s order charges Uniswap Labs with violating the CEA. None of the recent settlement orders clarify exactly what behavior triggered CEA obligations. Several activities are mentioned, including publishing smart contract software and operating a website or “front-end,” but no attempt is made to explain to the general public (and potential future targets) exactly which activities triggered obligations and why.
The settlement with Uniswap Labs states that they “contributed to the development and … deployed versions of a blockchain-based digital asset protocol,” “developed a web interface,” were a “major contributor to the development of the Protocol,” “deployed versions of the Protocol to the Ethereum blockchain,” and “created and maintained the Interface that facilitated access to the Protocol.” None of these factual allegations provides clear evidence of a requirement to register with the CFTC preemptively or be bound by CFTC rules going forward. In fact, it appears that merely publishing code—an activity protected under our First Amendment—has no registration requirement.
The Uniswap order focuses on providing a “front-end user interface” as the primary reason for violation. However, it remains unclear whether some combination of activities (such as publishing smart contract software and publishing a website) triggered liability or if one activity performed in isolation triggered it. This lack of specificity can create a chilling effect, dissuading developers from experimenting with new technologies or openly sharing their innovations via decentralized networks.
Moreover, even if these orders were clear on their test for liability, this would be an unfair approach to creating discernible policy guidance. Settlements only bind involved parties; they are not precedents. To whatever extent the general public can glean anything from these orders, it cannot rely on them for understanding compliance with CFTC rules. Further exacerbating regulatory compliance uncertainty is that settlements offer no opportunity for public comment.
Given that one interpretation could create liability for merely publishing smart contract software or an interface, there are serious Constitutional and First Amendment overbreadth concerns associated with this and past orders. The CFTC has previously overstepped Constitutional limitations regarding information publishers during enforcement actions in the 1990s (In re Armstrong; In re R & W Technical Services Ltd), only being checked when challenged up to the Supreme Court in Taucher v. Born.
Commissioner Summer Mersinger noted in her dissent on the Uniswap order: “wielding the hammer of enforcement against these DeFi protocols may result in some short-term ‘wins,’ but in the long-term...it will only create problems.”
The CFTC’s actions—both with Uniswap and previous cases like 0x—create a chilling effect threatening both speech and innovation without establishing clear precedents for when regulatory oversight is appropriate. Without such precedent, publishers may choose self-censorship over risking prosecution.
A better approach would be comprehensive guidance from regulators respecting First Amendment protections while allowing domestic innovation development. This would safeguard free speech, promote transparency, and ensure regulatory oversight protects consumers effectively.
