(Bloomberg) -- Uniswap Labs, the creator of the largest decentralized trading platform on Ethereum, said a potential enforcement action against it by the US Securities and Exchange Commission has no merit because crypto tokens are not securities, but rather are simply a form of files like PDFs.

The New York-based startup on Tuesday disputed the allegation that it operates an unregistered exchange and broker dealer. The response came after it announced last month that the SEC’s Enforcement Division served it with a Wells notice, notifying Uniswap Labs that it plans to recommend a legal action against it.

“The SEC’s entire case rests on the false assumption that all tokens are securities,” Marvin Ammori, chief legal officer of Uniswap Labs, said during a press conference over zoom on Tuesday. “Tokens are, in fact, simply a file format. They are a file format for value and they are not inherently securities. The SEC has to essentially unilaterally change the definitions of exchange, broker and investment contract in order to try to capture what we do.”

By suing Uniswap Labs for operating as an unregistered exchange, the SEC would be exposed to “serious risks of an adverse decision concerning its authority over crypto tokens, and precedent confining the scope of the ‘exchange’ definition in ways that undermine the SEC’s pending rulemaking in that area,” Uniswap Labs wrote in a 40-page response to the SEC on Tuesday.

“We will litigate if we have to,” Ammori said. “And if we litigate, we will win.”

SEC Chairman Gary Gensler has long said that decentralized exchanges aren’t really decentralized and fall under the regulator’s purview. Gensler has also said that many digital assets are unregistered securities subject to SEC rules. 

In its response, Uniswap Labs argued that UNI tokens, which are the governance token for Uniswap, are not securities because its token distributions do not meet the requirements of the Howey Test, a legal framework based on a Supreme Court ruling which defines investment contracts. It also disputed the SEC’s claim that LP tokens, a special kind of token a user gets when they put money into a pool on Uniswap that help traders trade different tokens, are securities.

“The LP Token is used as a bookkeeping device to keep track of which assets the user provided to the smart contract and any fees earned on the user’s liquidity,” the company said. “In other words, the LP Tokens are issued not for investment purposes, but instead as accounting tools, and they are, therefore, not securities.”



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