Federal court rules Ethereum based protocol not liable for third party scam tokens in landmark DeFi decision.
Uniswap secured a complete dismissal in a class action lawsuit alleging its platform facilitated fraudulent token trades, closing a case that began in 2022.
In a ruling released Monday, Judge Katherine Polk Failla of the US District Court for the Southern District of New York threw out the second amended complaint with prejudice, finding that the plaintiffs could not hold the company liable for alleged misconduct by unidentified third-party token issuers.
The litigation was first filed in April 2022 by investors who said they lost money on anonymous scam tokens traded through the protocol. Plaintiffs argued Uniswap operated as an unregistered securities exchange and broker-dealer and generated revenue from liquidity fees while allowing fraudulent tokens to circulate on its smart contracts.
Judge Failla had previously dismissed claims in August 2023. Monday’s ruling marks the final chapter, with the court finding that plaintiffs failed to plausibly allege actual knowledge of fraud, deceptive conduct under state consumer laws, or unjust enrichment.
The court drew parallels to peer-to-peer technologies that may be exploited for unlawful purposes, determining that developers of decentralized protocols cannot bear responsibility for illicit activity carried out by third-party users.
The decision clears Uniswap Labs, chief executive Hayden Adams, the Uniswap Foundation, and three venture capital backers named in the suit.
Following the dismissal, Adams wrote on X that the outcome sets a new legal precedent, arguing that if open source smart contract code is used by scammers, liability rests with the scammers rather than the developers.
UNI, the native token of the Uniswap exchange, rose 6% on the day, trading near $3.97 at press time, though the move was also supported by Bitcoin hovering around $69,000.
