Recently, the United States has continuously sent out favorable signals for the regulation of 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; two market maker giants, Wintermute and Citadel Securities, began to enter the U.S. market; Tornado Cash founder Alexey Pertsev was granted temporary release by the Dutch court... After the new government came to power, it continued to overturn the previous harsh accusations against the crypto industry and welcomed the influx of fresh blood, which also triggered a discussion on whether the crypto regulatory framework should turn to loosening. How to better adapt to decentralized institutions in regulation has always been a problem that has not been properly resolved in financial regulation, which has triggered many long-lasting controversial lawsuits.
Uniswap: SEC ends three-year investigation
As early as 2021, the SEC began investigating Uniswap Labs, questioning whether it operated as an unregistered securities exchange and whether its UNI tokens 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 issued its first response to the notice it received from the SEC in April, stating that the Uniswap Protocol is a secure, low-cost, and transparent infrastructure, and its protocol does not meet the definition of an exchange, and the UNI token does not meet the investment contract standard. The U.S. SEC should embrace open source technologies that improve outdated business and financial systems, rather than trying to eliminate them through litigation. On July 10, Uniswap Labs Chief Legal Officer Katherine Minarik posted on social media that Uniswap Labs urged the SEC not to proceed with its proposed rule-making process, which inappropriately expanded the definition of trading platform to include DeFi and more.
Key points of Uniswap Labs’ defense include:
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, its value does not depend on the efforts of Uniswap Labs, similar to Bitcoin and Ethereum, it is decentralized and should not be considered a security.
Image source: Uniswap Blog
On February 26, 2025, the SEC, which had previously accused Uniswap Labs of operating an unregistered securities exchange, broker or clearing agency and possibly issuing unregistered securities, finally terminated the investigation and dropped all charges. Hayden Adams, founder of Uniswap, bluntly stated that the SECs enforcement had no clear legal basis. As a selective enforcement strategy, the SEC attempted to force DeFi into an inappropriate regulatory framework while refusing to provide clear rules or compliance paths. The investigation lasted for more than three years, wasting a lot of time and millions of dollars. The UNI token also rose by nearly 10% in a short period of time, and the market reacted strongly.
The storm has finally come to an end, and Uniswap Labs called it a major victory for DeFi, emphasizing: This once again proves what we have always believed - the technology we built is on the right side of the law, and our work is on the right side of history.
Uniswaps victory is not only a victory for decentralization, but also a reminder that relevant departments should introduce appropriate regulatory policies. DeFi provides alternatives to traditional financial services such as lending, trading, and asset management through blockchain smart contracts, aiming to eliminate the impact of centralized institutions on the market. However, its decentralized nature complicates regulation. The existing legal framework mainly targets centralized financial institutions and lacks understanding and experience in the regulation of decentralized platforms. Although regulatory agencies such as the SEC and others have tried to apply anti-money laundering (AML) and know your customer (KYC) regulations to DeFi, enforcement is difficult.
Former SEC Chairman Gary Gensler once called DeFi the Wild West and stressed the need for stricter regulation. The Uniswap case shows that existing securities laws may not be fully applicable to decentralized platforms, and Congress may need to legislate in the future to develop a dedicated DeFi regulatory framework.
Tornado Cash Case Takes a Turn
Another typical case that was once severely sanctioned by US regulators and finally won a long litigation battle is Tornado Cash.
Tornado Cash is a privacy protocol on Ethereum that can obfuscate the source, destination, and counterparty of transactions, and aims to promote anonymous transactions indiscriminately without trying to determine their source. It was originally designed to protect user privacy, but it has also attracted regulatory attention for being used for money laundering.
In August 2022, the U.S. Treasury Departments Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash. The Treasury Department stated in a statement that it has been used to launder more than $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 more than $96 million in illegal funds in the Harmony Bridge hacking incident on June 24, 2022, and at least $7.8 million in stolen money in the Nomad hacking incident on August 2, 2022.
Image source: US Treasury official website
The Treasury Department’s sanctions mainly include banning access, prohibiting companies and citizens from interacting with it, prohibiting US institutions or platforms from generating capital flows with it, and freezing all assets owned or controlled by Tornado Cash in the United States.
In addition, in May 2024, a Dutch court found that Tornado Cash founder Alexey Pertsev assisted in the laundering of $2.2 billion in cryptocurrency and sentenced him to 64 months in prison. Prosecutors accused him of failing to prevent hacker groups (such as North Koreas Lazarus Group) from using the protocol to launder money. Although the defense emphasized the decentralization and uncontrollability of the protocol, the court believed that the developer was still responsible for abuse.
The Tornado Cash incident means that the struggle between encrypted protocols and regulators has escalated again. The sanctions against Tornado Cash are a direct attack on the protocol by regulators. The Ministry of Finance believes that as long as a privacy protocol is created that can be used by criminals, it is a criminal act and does not recognize the decentralization and uncontrollability of the protocol itself.
Image source: CoinDesk, people who support the protection of encryption technology and privacy are gathering to protest
The shift occurred at the end of 2024. On November 28, 2024, the court ruled that the immutable smart contracts in the Tornado Cash case were not property and could not be sanctioned under current laws, that is, the Treasury Departments previous sanctions on Tornado Cash were illegal. As 10X Research said in a report to investors: While this ruling does not recognize money laundering, it sets a precedent that allows programmers to develop and publish smart contract protocols without charging fees without worrying about sanctions. Balaji Srinivasan, former chief technology officer of Coinbase and a well-known cryptocurrency entrepreneur, said on Twitter: Privacy wins. Smart contracts win. Tornado Cash wins. And OFAC loses. The Tornado Cash protocol token TORN also rose rapidly after the ruling was made public, 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 sanctions, saying that the U.S. Treasury Departments approval of Tornado Cash exceeded its authority and further confirmed that the Treasury Departments sanctions were invalid.
More than two months after removing the shackles of illegality, Alexey Pertsev also posted that the Dutch court has agreed to suspend his pre-trial detention under electronic monitoring conditions, and he will be temporarily released at 10 am on February 7. Pertsev said that this will give him the opportunity to continue to appeal and fight for justice, and thanked all supporters for their help.
Related reading: Historic ruling: Sanctions against Tornado Cash were ruled illegal, TORN soared more than 10 times before falling back
Veteran market maker joins US market
At the Consensus Hong Kong 2025 conference a week ago, Wintermute CEO Evgeny Gaevoy said in an interview with Bloomberg that the companys business expansion plans have changed. In the past, it focused mainly on the Asian market, but now it will turn its focus to the United States. He also expressed the hope that the United States will introduce favorable cryptocurrency regulatory policies.
On February 25, Bloomberg reported that Citadel Securities, a giant in the traditional financial industry and the largest market maker on the New York Stock Exchange with a market value of $65 billion, plans to enter the field of cryptocurrency market making, marking a major change in its previous cautious attitude towards the cryptocurrency sector. The company has already planned to join the market maker list of multiple trading platforms such as Coinbase Global, Binance and Crypto.com, and may initially set up a market making team outside the United States.
Citadel Securities and Wintermute, one is a veteran market maker in the traditional financial field, and the other is a market maker giant that has been deeply involved in the crypto field for a long time. Their joining will undoubtedly directly increase the liquidity of the US crypto market. In particular, the joining of Citadel, a traditional financial giant, directly promotes the crypto market from the wild growth period to maturity, and promotes the overall improvement of the market in terms of liquidity, transaction efficiency and regulatory compliance. It also shows that with the evolution of US regulatory laws and regulations, institutions confidence in the crypto industry continues to increase, and the US crypto market may enter a new growth stage.
Related reading: Regulation continues to relax, are US crypto market makers back?
As Hayden Adams wrote today, Im glad to see the new SEC leadership taking a more constructive attitude, and look forward to working with Congress and regulators to develop rules that truly apply to DeFi - encouraging innovation, enhancing transparency and financial market access, and allowing this technology to flourish in the United States rather than being forced to flow overseas. With the continued release of favorable regulatory signals, the best era for DeFi may be about to come, and the United States may usher in a flourishing crypto spring.
