The Unicorn’s Seppuku

Uniswap is dead. Long live Uniswap.

As predicted, Uniswap is now the target of SEC investigation for its supposed role of operating as an unregistered-with-the-SEC securities exchange. As expected, CT groupthink is fixated on the SEC’s abuse of power, overreach, and regulation-by-enforcement. Cheerleaders are elbowing each other out to see whose public proclamation of allegiance to the unicorn will be louder and prouder: “DeFi rah rah, we shall overcome!”

Our track record of calling out the SEC’s abuse of discretion when it comes to crypto isn’t just unimpeachable, it’s pioneering. We were among the first to take a public stance on abuse of discretion and urging teams from Coinbase on down to up the stakes in their legal responses to the SEC’s arbitrary and capricious behavior. So, obviously, we’re in agreement that the SEC’s approach to Uniswap is misguided, counterproductive, and will ultimately prove unsuccessful.

However, we’ve also been extremely vocal about crypto’s self-owns and how crypto teams unwittingly paint enforcement targets on their backs by promulgating an unnecessarily limited finance-centric vision of crypto. This applies 1000x fold to Uniswap.

No matter how appealing, it’s simplistic and wrong to frame the SEC or “regulators” as the purely bad guys and portray projects like Uniswap as purely innocent victims. Uniswap’s current fate is tragic in that much of its current injury is self-inflicted. As difficult as self-critique can be, it’s important to understand how Uniswap’s unicorn impaled itself and made itself more vulnerable to external attack. This is absolutely critical to the process of healing, licking one’s wounds, and getting back on one’s feet.

$2 Treeellion Dollars of Honeypot

Two trillion dollars of “total protocol volume” and counting. On a fully permissionless decentralized exchange protocol. Yay! Except for the thorny point that denominating “total protocol volume” in dollars is prima facie evidence of financial exchange. If dollar volume is your DEX’s measure of progress, success, and failure, you’re destined to fail as a DEX.

Uniswap knows all this. The unicorn has been working overtime to refine its memecraft, mission, vision, and narrative. Just two months ago, the headline number was “total swap volume.”

Then one of uni’s lawyers likely intervened. Now it’s “Uniswap protocol volume” as though cosmetic changes will influence regulatory outcomes. These may seem like trivial points, but they highlight deeper narrative wars.

“Swap Smarter with Uniswap”

Uniswap’s core tragedy isn’t how it views itself (which is constantly evolving), but with how key Uniswappers frame Uniswap: as the place to “buy and sell crypto,” the largest DEX, with yuge dollar volumes, trillions of dollars of cumulative volume.

Despite being repeatedly warned that proclaiming the creation of “new financial infrastructure” isn’t the flex you think it is, Hayden, Dan & the team continue to brute force the same ill-fated trope: “we’re reimagining finance, bruv. Two trillion dollars worth of reimagination!”*

Even the Coinbase folks realized the relevant memespace isn’t “financial swaps” or “buy and sell crypto” but “update the system.”

Not “update the financial system,” but “update the system.” Subtle but important distinction. Kudos to the Coinbase interns who pushed this memeshift through. We know it wasn’t easy. We applaud the effort.

If CEX interns were able to figure it out, DEX interns should have been able to figure it out.

But no, Uniswap’s KOLs are trapped in a vision of DeFi they’ve convinced themselves is uncensorable despite all the DeFi regulatory trendlines pointing the other way. Tragic.

The Good News

The good news is that Uniswap isn’t what Uniswap Labs says Uniswap is, or even what Hayden and Dan say Uniswap is, just as Ethereum isn’t what Ethereum Foundation may claim Ethereum is, or what Vitalik or Vlad may say. What makes Uniswap so compelling is right there in the name: a universal swap where anyone can swap any token for anything else.

The power of k = xy isn’t due to billions of dollars of stablecoin liquidity (x) relative to a given crypto (y) in a specific LP. Uniswap’s superpower is anyone’s ability to create an SP (swap pool) for any token pair, on their own terms. Critically important, this includes the legal terms of exchange or swap. As an Etherean once said: “If I wanna call my newly-minted Uniswap v3 NFT a swap pool and not an LP, liquidity pool, or lending pool, that’s my choice. If you don’t like it, sue me. But I refuse to be locked in legal boxes I had no hand in creating.”

If you want to dig deeper on how naming is framing in the context of Uniswap and DEX politics, check out the thread discussion with Block Enthusiast:

Functions > Slogans

Uniswap devs are wicked smart. By this point, they must realize that wholesale adoption and propagation of industry ‘digital asset’-speak did far more harm to the protocol than good. They must understand how something so seemingly benign and ‘merely descriptive’ as ‘digital assets’ are actually pretty major roadblocks on their roadmap; SEC focus on Uniswap also subjects peer protocols to greater regulatory scrutiny, not only in the US, but globally.

It’s trivially easy for incumbents to perform regulatory capture when the ‘industry’ being captured just parrots incumbents’ totalizing and essentializing memes.

Thankfully, again, the core function of the Uniswap protocol defies easy categorization, classification, and regulation — pun intended. As influential as slogans are, function ultimately drives regulatory and governance policies.

And functionally, Uniswap is in the strongest place it has been since launch. Putting aside “trillions of dollars” of swap volume, the fact remains that Uniswap invites anyone to swap anything for anything else. Yes, that ‘anything’ may include digital assets, digital asset securities (whatever that mythical beast may be), stablecoins, commodities, NFTs, … but the ‘anything’ also includes entirely new crypto forms, including new crypto legal forms that are constantly springing into being. Those new legal forms may not have a liquid dollar value that can be easily quantified and included in a headline-grabbing “total protocol volume” guesstimate. But that’s a core feature of Uniswap, not a bug.

uniUniswap v5

Uniswap is so powerful and so universally trusted because it is constantly evolving and improving, just like Ethereum. These most recent attacks against Uniswap devs and peer DEX devs are unfortunate but unavoidable steps in crypto’s ongoing process of expansion and domination.

Incumbents cannot shut down Uniswap and have no compelling policy reasons for shutting down dex protocols like Uniswap. Even if overzealous regulators do find clever ways to impose stifling KYC ‘guardrails’ on dex frontends, the universal dex protocol itself will continue to flourish — even if the uni-swap ends up looking even more like a decentralized constellation of peer protocols.

In the end, an even more secure uniUniswap is inevitable. This new dUniswap’s chief defining characteristic will be Uniswap v1 memecraft forged in the heat of v1-v4 politics: a place where any person can swap any token for any other, for any purpose.

This journey will be full of lawyers trying to steer the unicorn towards a “sensible regulatory middle path” (soft capture). It will be full of ideologues urging the unicorn to embrace DarkFi and be guided by the moon, whatever that means. DEXers would be wise to steer clear of those traps.

The right path for the unicorn isn’t one where the unicorn is tabulating how many trillions of dollars of “trading volume” is taking place on its back. The most secure path for the unicorn is a neutral tabula rasa where anyone can do what they want on the protocol, on their own terms, including & especially legal terms. Without the baggage of ‘digital assets,’ ‘buy and sell crypto,’ and related viral loads.

Long Live 🦄

Uniswap as we know it is dead. Long live Uniswap.

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*Not trying to undermine Hayden, Dan & the 🦄 team. Completely the opposite. Boundless respect for their work. To paraphrase Vitalik, the reason we’re so critical of 🦄 is because we care so much about the 🦄 mission. Apologies if the tone sounds dismissive or not empathetic enough, but this has been a longstanding public conversation. Just keyword search cryptolawrev & uniswap on 𝕏. 🖤