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It has been more than a month since it was revealed that a Wells Notice was received stating that the US Securities and Exchange Commission (SEC) was planning to file a lawsuit against Uniswap Labs. This is seen by many as the true beginning of the “war on DeFi” as it is the first lawsuit filed against the largest decentralized exchange (DEX) developers.
The UNI token was trading at around $11.60 before the Wells Notice and quickly lost value following this news. Although it is currently holding just above $7, it has not shown a significant recovery. This also shows that the SEC‘s pressure on DeFi continues to create uncertainties about the future of the industry.
The SEC’s negative attitude towards cryptocurrencies is known, but its targets in the past have generally been centralized assets. This step towards Uniswap stands out as the first major move against decentralized finance (DeFi) platforms. The SEC also recently sent Wells Notices to Consensys and Robinhood’s crypto unit. In Robinhood’s first quarter earnings report following this news, it was reported that crypto trading volume increased by 224% compared to the previous year.
Market Performance of UNI and DeFi Tokens
While the price of the UNI token was around $11.60 before the Wells Notice news, it dropped to $6.43 immediately after the news. It is currently stable at just above $7, but has not recovered much from that level. Similarly, many other DeFi assets also lost value following this news.
DeFi dominance, i.e. the ratio of market cap of DeFi tokens to the total cryptocurrency market, dropped to 3.63% on April 14 following Uniswap’s Wells Notice announcement. This rate marks the lowest level since June 2022, when many crypto assets were sold after the collapse of Terra Luna.
DeFi dominance has recovered slightly and has stabilized at just under 3.75%. This rate is historically very low and it is unusual for this level to be maintained for this long. Even in 2022, DeFi’s dominance had risen to over 4% by July. DeFi dominance remained above 3.75% from June 2022 to April 2024.
Future Prospects
The Wells Notice has a great impact on the DeFi space, but no serious changes are expected in the short term. Coinbase received a Wells Notice in March 2023 and was not sued until June 2023. While this legal process is still ongoing, Coinbase is continuing normal operations.
Unless news emerges to give positive momentum to the DeFi space, it may be difficult to see a significant recovery in the industry. The uncertainties created by the Wells Notice have caused other assets in the DeFi field to lose value and continue to put pressure on the general outlook of the sector.
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