A federal judge has dismissed a proposed class-action lawsuit against Uniswap Labs, CEO Hayden Adams and several venture capital backers, ruling they cannot be held liable for so-called “rug pull” tokens traded on the decentralized exchange’s protocol.
In a ruling Monday in the U.S. District Court for the Southern District of New York, Judge Katherine Polk Failla dismissed other state lawsuits in Risley’s case against Universal Navigation Inc., the Brooklyn-based company that operates Uniswap. after previously dismissing plaintiffs’ federal securities claims. The ruling effectively ends the case at the district court level.
The ruling is one of the first to specifically address whether developers and investors behind a decentralized protocol can be held liable under applicable state and securities laws for tokens created and traded by third parties.
“Due to the decentralized nature of the protocol, the identity of Scam Token issuers is fundamentally unknown and unknowable, leaving plaintiffs with an identifiable injury but no identifiable defendant,” Failla wrote.
“Undaunted, they are now suing Defendants Uniswap and VC, in the hope that this Court can overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least with respect to the specific allegations alleged in this suit,” she added.
Irina Heaver, a crypto lawyer based in the United Arab Emirates, told CoinDesk “the dismissal signals that the courts are beginning to engage more seriously with the realities of decentralization.”
By recognizing that a permissionless protocol governed by autonomous smart contracts is not the same as a centralized intermediary exercising control, the court made an important distinction for DeFi, she explained.
“When code runs automatically and there is no discretionary control, responsibility cannot simply be shifted back to developers because bad actors are misusing the infrastructure,” Heaver said. “The real question now is how this reasoning applies to criminal cases like Tornado Cash. If decentralization is recognized as a structural reality, prosecutors will have to prove intent and control, not just authorship.”
Brian Nistler, head of policy at Uniswap, celebrated the decision on X, calling it “another precedent-setting decision for DeFi.” He highlighted what he described as his “favorite quote” from the case: “It defies logic that a writer of a smart contract, a piece of computer code, could be held responsible… for the misuse of the platform by a third-party user. »
The plaintiffs, a group of investors, claimed they lost an undisclosed amount of money after purchasing dozens of tokens on the Uniswap protocol, which they later described as scams. Because the token issuers were not identified, investors instead sued Uniswap Labs, the Uniswap Foundation, Adams and venture capital firms Paradigm, Andreessen Horowitz and Union Square Ventures.
Failla rejected the argument that the defendants could be held liable simply for providing the infrastructure on which the tokens were issued and traded.
“Plaintiffs’ theories of liability still rely on Defendants ‘facilitating’ the fraudulent transactions by providing a marketplace and facilities to bring together buyers and sellers of tokens,” Failla wrote, concluding that the claims failed as a matter of law.
In a previous dismissal of federal claims, Failla said it “defies logic” to hold the writer of a smart contract responsible for a third party’s misuse of the platform — language that has been widely cited by decentralized finance proponents.
