In recent days, the United States has been sending positive signals about regulating the crypto industry: In the early morning of February 26, the U.S. Securities and Exchange Commission (SEC) announced the termination of its three-year investigation into Uniswap Labs, and did not take any enforcement action; the two market maker giants Wintermute and Citadel Securities have begun to enter the U.S. market; the founder of Tornado Cash, Alexey Pertsev, has been granted temporary release by a Dutch court. The new government has repeatedly "overturned" the previous harsh accusations against the crypto industry, welcoming the influx of new blood, which has also sparked discussions on whether the crypto regulatory framework is shifting towards "relaxation". How to regulate in a way that better adapts to decentralized institutions has always been an unresolved problem in financial regulation, which has led to many long-standing controversial lawsuits.
Uniswap: SEC's Three-Year Investigation Terminated
As early as 2021, the SEC began investigating Uniswap Labs, questioning whether it was operating as an unregistered securities exchange and whether its UNI token constituted an illegal securities offering. On April 11, 2024, the SEC issued a warning to Uniswap Labs in the form of a "Wells Notice", planning to take enforcement action against the company. On May 22, Uniswap Labs responded for the first time to the notice it received from the SEC in April, stating that the Uniswap Protocol is a safe, low-cost, and transparent infrastructure, and that its protocol does not meet the definition of an exchange, and the UNI token does not meet the "investment contract" standard, and the U.S. SEC should embrace open-source technology that improves the outdated business and financial system, rather than trying to eliminate it through litigation. On July 10, Katherine Minarik, Chief Legal Officer of Uniswap Labs, posted on social media that Uniswap Labs urged the SEC not to continue the rulemaking process it proposed, which inappropriately expanded the definition of "trading platform" to include DeFi and more.
Uniswap Labs' defense includes the following key points:
The Uniswap protocol, website and wallet do not meet the legal definition of a securities exchange or broker-dealer;
The UNI token is held by more than 300,000 holders, and its value does not depend on the efforts of Uniswap Labs, similar to Bitcoin and Ethereum, it is decentralized and should not be treated as a security.
Source: Uniswap Blog
On February 26, 2025, the SEC finally terminated its investigation and withdrew all charges against Uniswap Labs, which had previously accused it of operating an unregistered securities exchange, broker-dealer or clearing agency, and possibly issuing unregistered securities. Uniswap founder Hayden Adams directly stated that the SEC's enforcement had no clear legal basis, and as a strategy of selective enforcement, the SEC tried to forcibly incorporate DeFi into a regulatory framework that did not apply, while refusing to provide clear rules or compliance paths, and this investigation lasted for more than 3 years, wasting a lot of time and millions of dollars. The UNI token also rose nearly 10% in the short term, with a strong market reaction.
This storm has finally subsided, and Uniswap Labs called this a "major victory for DeFi", and emphasized: "This again proves the fact we have always believed - the technology we have built is on the right side of the law, and our work is also on the right side of history."
Uniswap's victory is not only a victory for decentralization, but also a reminder to the relevant departments to introduce appropriate regulatory policies. DeFi provides alternative solutions to traditional financial services such as lending, trading and asset management through blockchain smart contracts, aiming to eliminate the influence of centralized institutions on the market. However, its decentralized nature makes regulation more complex, and the existing legal framework is mainly aimed at centralized financial institutions, lacking understanding and experience in regulating decentralized platforms, although the SEC and other regulators have tried to apply anti-money laundering (AML) and know-your-customer (KYC) regulations to DeFi, the difficulty of implementation is great.
Former SEC Chairman Gary Gensler once described DeFi as the "Wild West", emphasizing the need for stricter regulation. The Uniswap case shows that the existing securities laws may not fully apply to decentralized platforms, and in the future, congressional legislation may be needed to develop a specific DeFi regulatory framework.
Tornado Cash Case Sees a Turning Point
Another typical case that was once severely sanctioned by the U.S. regulatory authorities, but later won a victory after a long legal battle, is Tornado Cash.
Tornado Cash is an Ethereum-based privacy protocol that can obfuscate the source, destination and counterparty of transactions, aiming to promote anonymous transactions indiscriminately without attempting to determine their origin. Its original design was to protect user privacy, but it has also attracted regulatory attention for being used for money laundering.
In August 2022, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash. The Treasury Department stated in the document that it has been used to launder over $7 billion in virtual currency since its creation in 2019, including $455 million stolen by the North Korean government-backed hacker group Lazarus Group; in addition, Tornado Cash was also used to launder at least $96 million in illicit funds from the Harmony Bridge hack on June 24, 2022, and at least $7.8 million in loot from the Nomad hack on August 2, 2022.
Source: US Treasury website
The Treasury Department's sanctions mainly include prohibiting access, prohibiting enterprises and citizens from interacting with it, prohibiting U.S. institutions or platforms from generating fund flows with it, and freezing all assets owned or controlled by Tornado Cash within the United States.
In addition, in May 2024, a Dutch court ruled that Tornado Cash founder Alexey Pertsev had assisted in laundering $2.2 billion in cryptocurrency and sentenced him to 64 months in prison. The prosecution accused him of failing to prevent hacker groups (such as the North Korean Lazarus Group) from using the protocol to launder money, although the defense emphasized the "decentralization" and "uncontrollability" of the protocol, the court held that the developer still needs to be held responsible for the abuse.
The Tornado Cash incident means that the "crypto protocol" and "regulation" struggle has escalated again. This sanction on Tornado Cash is a direct attack by regulators on the protocol, as the Treasury Department believes that creating a privacy protocol that can be used by criminals is a criminal act, and does not recognize the "decentralization" and "uncontrollability" of the protocol itself.
Source: CoinDesk, crowds supporting the protection of crypto technology and privacy are gathering in protest
The turning point occurred at the end of 2024. On November 28, 2024, the court ruled that the immutable smart contract of Tornado Cash is not property and cannot be sanctioned under current laws, i.e. the Treasury Department's previous sanctions on Tornado Cash were illegal. As 10X Research said in a report to investors: "While this ruling does not condone money laundering, it sets a precedent allowing programmers to develop and release smart contract protocols without charge without fear of sanctions." Balaji Srinivasan, former Chief Technology Officer of Coinbase and a well-known cryptocurrency entrepreneur, tweeted: "Privacy won. Smart contracts won. Tornado Cash won. And OFAC lost." The Tornado Cash protocol token TORN also surged quickly after the ruling, rising from a low of $3.7 to a high of $43 within an hour.
In January 2025, a Texas court again supported the overturning of the sanctions, stating that the U.S. Treasury Department's approval of the Tornado Cash sanctions exceeded its authority, further confirming the invalidity of the Treasury Department's sanctions.
With the "illegal" shackles removed, two months later, Alexey Pertsev also posted that the Dutch court had agreed to temporarily release him on electronic monitoring conditions, and he would be temporarily released at 10 a.m. on February 7. Pertsev said this would give him a chance to continue his appeal and fight for justice, and thanked all his supporters for their help.
Related reading: Historic Ruling: Sanctions Against Tornado Cash Deemed Illegal, TORN Surges Over 10x Before Pullback
Veteran market makers join the US market
At the Consensus Hong Kong 2025 conference a week ago, Wintermute CEO Evgeny Gaevoy told Bloomberg in an interview that the company's business expansion plans have changed, with a previous focus on the Asian market, and now shifting its focus to the US, expressing hope that the US will introduce favorable cryptocurrency regulatory policies.
On February 25, according to Bloomberg, the traditional financial giant Citadel Securities, the largest market maker on the New York Stock Exchange with a market capitalization of $65 billion, plans to enter the cryptocurrency market making field, marking a significant shift in its previously cautious attitude towards the cryptocurrency sector. The company is currently planning to join the market maker lists of platforms such as Coinbase Global, Binance and Crypto.com, and may initially set up a market making team outside the US.
Citadel Securities and Wintermute, one a veteran market maker in the traditional finance field and the other a market making giant in the cryptocurrency sector, their entry will undoubtedly directly increase the liquidity of the US cryptocurrency market. Especially the entry of the traditional financial giant Citadel, which will directly drive the cryptocurrency market from the "wild growth" period to maturity, and promote the comprehensive improvement of the market in terms of liquidity, trading efficiency and regulatory compliance, and also indicates that as the US regulatory framework evolves, institutional confidence in the cryptocurrency industry is constantly increasing, and the US cryptocurrency market may enter a new growth phase.
Related reading: As regulation continues to relax, are US cryptocurrency market makers coming back?
As Hayden Adams wrote today, "I'm pleased to see the new SEC leadership taking a more constructive approach and look forward to working with Congress and regulators to develop rules truly fit for DeFi - encouraging innovation, enhancing transparency and financial market access, and allowing this technology to thrive in the US rather than being forced overseas." With the continued release of favorable regulatory signals, the best days of DeFi may be just around the corner, and the US may be about to witness a blooming crypto spring.
