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 dismissed the remaining state law claims in Risley v. Universal Navigation Inc., the Brooklyn-based firm that operates Uniswap. after previously dismissing plaintiffs’ federal securities claims. The decision effectively ends the case at the 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 state and securities laws for tokens created and traded by third parties.
“Due to the decentralized nature of the Protocol, the identities of scam token issuers are essentially unknown and unknowable, leaving plaintiffs with an identifiable injury but no identifiable defendant,” Failla wrote.
“Undeterred, they are now suing the Uniswap and VC defendants, hoping that this Court will overlook the fact that the current state of cryptocurrency regulation leaves them without recourse, at least as to the specific claims alleged in this lawsuit,” he added.
Irina Heaver, a crypto lawyer based in the United Arab Emirates, told CoinDesk that “the dismissal indicates that courts are beginning to more seriously address the realities of decentralization.”
By recognizing that a permissionless protocol governed by autonomous smart contracts is not the same as a centralized intermediary that exercises control, the court drew an important distinction for DeFi, he explained.
“When code runs automatically and there is no discretionary control, responsibility cannot simply be reassigned to developers because bad actors misuse the infrastructure,” Heaver said. “The real question now is how this reasoning applies to criminal cases like Tornado Cash. If decentralization is recognized as a structural reality, prosecutors will have to demonstrate intent and control, not simply authorship of the code.”
Brian Nistler, head of policy at Uniswap, welcomed the ruling on X, calling it “another ruling that sets a precedent for DeFi.” He highlighted what he described as his “favorite quote” from the case: “It defies logic that a writer of a smart contract, a piece of computer code, could be held responsible… for the misuse of the platform by a third party.”
The plaintiffs, a group of investors, claimed they lost an undisclosed amount of money after purchasing dozens of tokens on the Uniswap protocol that they later described as scams. Because the token issuers were not identified, investors 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 still rely on defendants having ‘facilitated’ the fraudulent transactions 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 dismissal of federal claims, Failla said it “defies logic” to hold the drafter of a smart contract liable for a third party’s misuse of the platform, language that has been widely cited by decentralized finance advocates.
