The U.S. Securities and Exchange is reportedly investigating automated market maker Uniswap, according to a bombshell report by The Wall Street Journal that cites anonymous sources privy to the matter.
The agency's enforcement attorneys have inquired about the exchange's marketing and the way users interact with the platform.
The report confirms that the securities watchdog is readying to put the clamps on the booming decentralized finance industry.
SEC boss Gary Gensler voiced his concerns about the rapidly growing crypto sector in early August. He then ramped up his criticism of DeFi protocols, recently claiming that they are not sufficiently decentralized:
There’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees.
Gensler appears to take issue with those projects that incentivize their users by offering them valuable tokens.
A spokesperson for Uniswap told the WSJ that the company is committed to regulatory compliance.
The price of UNI, the project's governance token, has been largely unaffected by the news, currently trading down about 1.5%.
The SEC has not confirmed the report since it cannot speak about non-public investigations. It is yet to be seen whether any formal charges will come out of the Uniswap probe, which appears to be in its early stage.
The much-feared agency is currently embroiled in ongoing lawsuits against blockchain company Ripple as well as several other crypto actors.
The rise of Uniswap
Decentralized exchange Uniswap emerged seemingly from nowhere as the leading decentralized exchange during the "DeFi summer" of 2020. It only cultivated more interest with the surprise airdrop of its governance token in September and its rivalry with vampire copycat "SushiSwap."
In a short amount of time, it became a threat for centralized trading platforms of the likes of Coinbase that rely on old-fashioned order books.
With DeFi no longer being a niche sector, Uniswap turned into a crypto giant, crossing $10 billion in weekly trading volume in April.
Yet skeptics have pointed out that the platform might not be sufficiently decentralized since the project's user interface (UI) is controlled by a centralized authority. In July, the exchange raised many eyebrows after blacklisting 100 tokens from the platform.
Furthermore, some believe that the UNI governance token might not pass the Howey Test, which would make it an unregistered security.