A federal judge has dismissed a proposed class-action lawsuit against Uniswap Labs, CEO Hayden Adams and several venture capital backers, ruling that they cannot be held liable for alleged “rug pull” tokens traded on the decentralized exchange’s protocol.
In a ruling issued Monday by the U.S. District Court for the Southern District of New York, Judge Katherine Polk Failla threw out the remaining state law claims of Risley v. Universal Navigation Inc., the Brooklyn-based company that operates Uniswap. after previously dismissing the plaintiffs’ federal securities claims. The decision effectively ends the case at district court level.
The ruling is one of the first to specifically address whether developers and investors behind a decentralized protocol can be held liable under existing securities and state laws for tokens created and traded by third parties.
“Due to the decentralized nature of the protocol, the identities of Scam Token issuers are basically unknown and unknowable, leaving claimants with an identifiable harm but no identifiable defendant,” Failla wrote.
“Undaunted, they are now suing the Uniswap Defendants and the VC Defendants in the hope that this court can overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least with respect to the specific claims alleged in this case,” she added.
Irina Heaver, a UAE-based crypto lawyer, told CoinDesk “the dismissal signals that the courts are beginning to engage more seriously with the realities of decentralization.”
By recognizing that a permissionless protocol governed by autonomous smart contracts is not the same as a centralized intermediary exercising control, the court drew an important distinction for DeFi, she explained.
“When code runs automatically and there’s no discretionary control, responsibility can’t simply be passed to developers because bad actors abuse the infrastructure,” Heaver said. “The real question now is how this reasoning carries over into criminal cases like Tornado Cash. If decentralization is recognized as a structural reality, prosecutors will have to prove intent and control, not just authorship of code.”
Brian Nistler, Uniswap’s head of policy, celebrated the ruling on X, calling it “another precedent-setting ruling for DeFi.” He highlighted what he described as his “favorite quote” from the case: “It defies logic that a drafter of a smart contract, a piece of computer code, could be held liable … for a third-party user’s misuse of the platform.”
The plaintiffs, a group of investors, claimed they lost an undisclosed amount after buying dozens of tokens on the Uniswap protocol, which they later described as a scam. Because the token issuers were unidentified, the investors instead sued Uniswap Labs, the Uniswap Foundation, Adams and venture firms Paradigm, Andreessen Horowitz and Union Square Ventures.
Failla rejected the argument that the defendants could be held liable simply for providing the infrastructure on which the tokens were issued and traded.
“Plaintiffs’ theories of liability are still premised on Defendants having ‘facilitated’ the fraudulent trades by providing a marketplace and facilities to bring together buyers and sellers of tokens,” Failla wrote, concluding that the claims failed as a matter of law.
In an earlier rebuttal to the federal claims, Failla said it “defies logic” to hold the creator of a smart contract liable for a third party’s misuse of the platform — language that has been widely cited by decentralized finance advocates.
