Uniswap sued by SEC: How can Web3 coin issuance projects build a compliance architecture?

Source: Lawyer Liu Honglin

01 Uniswap is targeted by the SEC

A tree that stands out in the forest will be destroyed by the wind. The US regulatory authorities have always focused on collecting protection fees in the name of protecting the majority of investors in the supervision and enforcement of Web3 projects.

Binance, the leader of the traditional centralized virtual currency exchange CEX, has already paid the protection fee. How can the leader of the decentralized exchange DEX be let go?

No, the US Securities and Exchange Commission (SECfalv) is sharpening its knife to the dragon of the DEX track, Uniswap.

On April 10, the US Securities and Exchange Commission (SEC) issued a warning to Uniswap Labs that it plans to take enforcement action against the company. The warning was issued in the form of a "Wells Notice", which the US Securities and Exchange Commission sends to a company before initiating a formal lawsuit to provide the company with a last chance to refute any allegations. The specific nature of the SEC's allegations against Uniswap Labs is not yet known.

Of course, this article is not about whether UNI constitutes a security. After all, this matter itself is not purely a legal issue. Lawyer Honglin wants to take the Uniswap project as an example to talk to you about the legal structure of Web3's coin issuance projects.

Due to the supervision of mainland China, projects that want to issue coins cannot be in China, but must be developed overseas in compliance. The first step to compliance is to build the legal entity of the company involved in the project.

With the advent of the bull market, more and more entrepreneur friends have come to consult Lawyer Honglin. If a project wants to issue coins, what kind of legal structure would be more appropriate? How do the well-known project parties in the industry design their architecture? ... These are issues that entrepreneurs are more concerned about. Then, let's unveil Uniswap with Lawyer Honglin.

02 Introduction to Uniswap

Uniswap is a decentralized trading platform protocol built on Ethereum. More precisely, it is an automated liquidity protocol. Through Uniswap, users can seamlessly exchange various ERC-20 tokens without using any order book or any centralized party.

The Uniswap protocol was created by Hayden Adams in 2018. Since its inception, Uniswap's trading volume has exceeded 2 trillion US dollars, accounting for more than 50% of the trading volume in the decentralized exchange market. It is no exaggeration to say that it is the No. 1 in DeFi.

As a world-renowned project, UNI naturally has its own token economy. UNI is the native token of the Uniswap protocol, which gives governance rights to holders. The initial minting total is 1 billion, of which 60% are shared by existing Uniswap community members, and the remaining 40% are distributed to team members, investors and consultants within four years. Part of the community distribution is achieved through liquidity mining.

In order to achieve the compliance operation and development of the project, the project party has designed its legal structure as follows:

Image from the UNISWAP FOUNDATION website

03 Politically correct foundation:Uniswap Foundation

First of all, the Uniswap project party must say to the outside world that it is a DAO organization built by all people, and the important matters of the organization must be fairly voted by UNI holders. Of course, the referendum is only responsible for external PR, and behind closed doors, there must still be a council of elders to discuss matters.

In order to cooperate with the efficient operation of the DAO organization, the project party registered the Uniswap Foundation in Delaware, USA in 2022. This is a non-profit organization that operates independently of other entities in the Uniswap ecosystem, including Uniswap Labs, which is responsible for the development of the Uniswap project.

The Uniswap Foundation is responsible for the daily operations of the entire community, which can be summarized into three aspects:

1. Provide financial support to developers and core contributors of the Uniswap network

2. Provide financial support to researchers in the Web3 field, including Uniswap

3. Responsible for the strategic planning and development of the entire Uniswap project

Picture from the UNISWAP FOUNDATION website

Picture from UNISWAP FOUNDATION website

04 Developers who work for money: Uniswap Labs

Happiness comes from struggle, and code comes from keyboard. Uniswap 's ambitions naturally require technical developers to implement them on a daily basis. Therefore, the project party set up a company called Uniswap Labs to be responsible for daily application development, such as the V4 version of the decentralized exchange, the cross-chain protocol Uniswap X, and the decentralized wallet Uniswap Wallet.

Since it is a company, it is legitimate to be commercialized. The commercial contracts signed with the outside world and the return of commercial rewards. The recruitment of employees is all carried out under the name of the project company. Of course, the greater the ability, the greater the responsibility. The object of the US SEC's enforcement notice this time is Uniswap Labs.

05 Human Translation

If we understand Uniswap Labs as a traditional company, we may be able to understand the relationship between multiple entities more clearly.

1. UniswapDAO is the company's general meeting of shareholders. Holders of UNI project tokens can vote on protocol changes, similar to voting on the only important matter of the company as shareholders. Users who hold a large number of UNI are major shareholders, and naturally have more say in the UNI project.

2. Uniswap Foundation is a board of directors elected (internal) and appointed (determined) by the shareholders' meeting. Responsible for major decisions in the company's business development, such as the selection of development companies, the selection of partners, and external sponsorship or investment.

3. Uniswap Labs is a team of professional managers hired by the board of directors with high salaries due to nepotism. They are responsible for specific work, such as software development, wallet development, and cross-chain protocol development for decentralized exchanges.

06 Mankiw's suggestion

Through the foundation + project development company approach, Uniswap can strike a good balance under the existing regulatory framework "advocating the concept of decentralized community autonomy + commercial companies making money efficiently". It can be said that it is a compliance model that current Web3 entrepreneurs can pay tribute to.

This model is also the method that Mankiw often uses when designing overseas compliance architecture for Web3 project parties going overseas. Project companies like Uniswap Labs can be placed in North America, Hong Kong, Singapore and other places according to the business needs of the entrepreneurial team, so as to facilitate the project party to conduct external business cooperation, APP listing, bank account opening, personnel recruitment and other purposes that require dealing with the real world.

And foundations like UNISWAP FOUNDATION are arranged in Singapore, Cayman, Switzerland and other places according to the client's main customer market and compliance budget. Previously, Mankiw's foreign affairs team specially wrote an article to introduce the relevant situation of the Cayman Foundation. Interested friends can click 《Web3 Project Compliance: Why Choose the Cayman Foundation for Token Issuance? 》.