German Financial Supervisory Authority BaFin recently issued a warning of Unicorn-fx.com. This false unicorn supposedly offers access to the world of assets as a boker (foreign-exchange). Businesoft Ltd. of Saint Vincent and the Grenadines is named as the owners of Unicorn-fx.com. It acts – if it exists – as a centralised exchange (CEX) (St. Vincent and the Grenadines are one of the rare places where exchange brokers are still unregulated).
UnicornFX apparently is a mere scam as fintelegram.com further explored. However, one might think of other unicors, such as the popular crypto plattform 1Inch.io, a decentralised exchange for crypto assets. The mascot of 1Inch is – besides the pictorial spelling – a (furious) unicorn. Or Uniswap, the US-based, major decentralised exchange (DEX) for Ethereum based tokens.
Apparently, there are several unicorns out there waiting for their rise. But to get there, they will have to deal with regulation. This is something, Uniswap Labs, the developer of the Uniswap protocol and the Uniswap website, has realized, too.
As a decentralised exchange plattform Uniswap does not provide for a legal entity that „brokers“ the crypto assets its users want to exchange. Smart contracts based on the Uniswap protocol perform the exchange by using liquidity pools created by Uniswap investors. The pool buys and sells crypto assets for own account by acting as a automated market maker. This kind of DeFi is currently not regulated under U.S. laws.
However, SEC has already started an investigation on Uniswap in September 2021 after Uniswap Labs has issued the UNI token. 60% of the token were distributed to its users (community), 40% to the inner circle of team, investors and advisors. UNI is meant to secure a shared community ownership as it allows UNI token holders to participate in governance on the Uniswap protocol and the wider ecosystem. But one might ask, and SEC does ask this for sure, whether 60% of the token are also the majority in a decentralised plattform. Or is the majority with the other 40% linked to Uniswap labs or its founders and investors.
Just a few days ago, the founder of Uniswap, Hayden Adams, complainted that JP Morgan Chase closed his bank accounts – supposedly because he is the founder of Uniswap.
It is not completely unlikely that the UNI token might be treated as a security under U.S. laws. The SEC is still trying to get the regulatory grip on crypto assets and DeFi in the U.S.
Under German laws the UNI token would assumably be treated as a security under the Securities Prospectus Act (WpPG) alternatively as an Asset Investment under the German Asset Investment Act (KAGB). But was there a public offer that mandates to publish a prospectus? As the whole Uniswap community was supposedly eligible for the offer, the answer would likely be YES. The prospctus obligations and liability would then be imposed on Uniswap Labs as issuer of the token. At the same time, the UNI token qualifies as crypto asset which is defined as a financial instrument under German Banking Act. In consequence, the exchange activities on the Uniswap plattform could constitute investment broking or the operation of a multilateral trading facility or proprietary trading, which all of them are regulated activities.
The essential question is who performs these activities. Is Uniswap a really decentralized, autonomous unicorn or is it an asset investment or even an enterprise which can be regulated. Until the regulators do not state their case on decentralized finance there is no safe harbor for unicorns.
