On Tuesday, a federal judge decided to file a class action lawsuit against the decentralized cryptocurrency exchange Uniswap.
Crypto Twitter/X hailed the ruling as a victory for the industry, but the case was thrown out of lower federal court, does not involve a federal agency (such as the Securities and Exchange Commission), and is not a major cryptocurrency. Relevant part. observers watched the case with bated breath.
So, is the outcry celebrating the dismissal of the case just evidence of the predicament in which an industry finds itself that sees a court ruling, however minor, as a victory? Or will the federal judge's decision affect the industry and other cryptocurrency-related cases pending in court?
This case has already been described
In April 2022, a group of plaintiffs filed a lawsuit against Uniswap, the largest developer of decentralized exchanges, and its investors, including venture capitalists in the cryptocurrency industry, including a16z and Paradigm.
In their lawsuit, the plaintiffs allege that they lost money after investing in counterfeit tokens purchased on the exchange. The creators of these counterfeit tokens are not named, so the reporter holds developers and investors accountable under federal securities laws.
However, the judge presiding over the case, Katherine Polk Failla, said in her ruling that "due to the decentralized nature of the protocol, the identity of the issuer of the forged tokens is essentially unknown and unknowable, which poses identifiable harm to the claimants as a result. . but no damage was suffered." can be identified. defendant. without."
He dismissed the lawsuit, adding that the plaintiffs' claims "amount to holding apps like Venmo or Zelle responsible for drug trafficking when these platforms are used to facilitate money transfers."
However, the dismissal decision did not prevent the plaintiff and his attorney from filing a class action in the district court.
Where is Coinbase?
Observers note that Failla is the same judge assigned to the SEC charges against Coinbase, the largest cryptocurrency exchange in the United States, and the Department of Justice charges against the developer of Tornado Cash, a protocol that transfers ownership of hide cryptocurrencies.
Additionally, Failla's decision — that software should not be held liable for the actions of malicious actors — could be indicative of how it will interpret future cases as Coinbase and Tornado Cash position themselves as software platforms.
However, two lawyers told Fortune to extrapolate Failla's reasoning beyond the Uniswap case would be too much. "The difference is that in this case the plaintiff is arguing that you are held responsible for the transactions that occur on their platform," Anthony Tu-Sekin, head of blockchain and cryptocurrency at Seward & Kissel, said in an interview . "With Coinbase, the SEC isn't saying Coinbase should be liable for losses to anyone. It's saying Coinbase operates like an unlisted exchange. Those are two different types of claims."
Jack Graves, a law professor at Syracuse University who teaches a course on cryptocurrency law, echoes Tu-Sekine's interpretation. "I don't think it had anything to do with these cases," he told Fortune , referring to the Coinbase and Tornado Cash lawsuits. “I would bet on the SEC in the Coinbase case,” he later added.
"Unusual legal and technological complexities"
Failla does not sit on the Court of Appeals or the Supreme Court, so the dismissal does not set a binding legal precedent. Nevertheless, crypto legal experts tell Fortune that the justices will certainly consider another judge's decision, and his position in the Southern District, which has historically played a key role in shaping the regulations financially, gave more weight to the dismissal .
"I think in general the Southern District of New York receives more respect than other district courts in financial matters," Graves told Fortune . “I think in general [judges] succeed each other. At least they are considering what other courts have done.
And what impact might Failla's decision have on future courts and politicians? In his opinion, he wrote that "the court declined to expand the federal securities law to cover the alleged conduct and found that the plaintiffs' concerns were with Congress rather than this court."
Yesha Yadav, a law professor at Vanderbilt University who focuses on banking and financial regulation, told Fortune that the congressional judge's appeal was important because it echoes frequent calls by industry supporters for cryptography, particularly Coinbase.
“This is one of the first DeFi test cases to appear in court,” Yadav said. “Clearly, this analysis highlights enormous legal and technological complexities and places a real responsibility on Congress to try to resolve these issues. »
This story originally appeared on Fortune.com
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