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 “rag 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 Fella rejected the remaining state law claims in Risley v. Universal Navigation Inc., the Brooklyn-based firm that operates Uniswap. After first dismissing the plaintiffs’ federal securities claims. The decision effectively ends the case at the district court level.
This decision is one of the first to specifically address whether developers and investors behind decentralized protocols 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 essentially anonymous and unknown, with plaintiffs having identifiable injuries but no identifiable defendants,” Fella wrote.
“Undaunted, they have now sued the Uniswap defendants and the VC defendants, hoping 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 lawsuit,” he said.
“The dismissal signals that the courts are beginning to engage more seriously with the realities of decentralization,” UAE-based crypto lawyer Irina Heaver told CoinDesk.
He explained that by acknowledging that a permissionless protocol governed by autonomous smart contracts is not the same as a centralized intermediary using control, the court made an important distinction for DeFi.
“When code executes automatically and there are no discretionary controls, accountability cannot simply be reassigned to developers as bad actors abuse the infrastructure,” Heaver said. “The real question now is how this logic applies in criminal cases like Tornado Cash. If decentralization is accepted as a structural reality, prosecutors will need to prove intent and control, not just authorship of the code.”
Brian Nistler, head of policy at Uniswap, celebrated the decision on X, calling it “another precedent-setting decision for DeFi.” He highlighted what he described as his “favorite quote” from the case: “It defies the argument that the person drafting a smart contract, a computer code, can be held liable for misuse of the platform by a third-party user.”
The plaintiffs, a group of investors, claimed they lost an undisclosed amount of money after purchasing dozens of tokens on the Uniswap protocol, which they later described as a scam. Because the token issuers were unknown, investors instead sued Uniswap Labs, the Uniswap Foundation, Adams, and venture firms Paradigm, Andreessen Horowitz, and Union Square Ventures.
Fella rejected the argument that the defendants could only be held responsible for providing the infrastructure on which the tokens were issued and traded.
“Plaintiffs’ theory of liability is still based on Defendants ‘facilitating’ scam trading by providing markets and facilities to bring together buyers and sellers of tokens,” Fella wrote, concluding that the claims failed as a matter of law.
While previously dismissing the federal claims, Fella said that holding the drafter of a smart contract liable for third-party misuse of the platform “defies logic” — language that has been widely cited by decentralized finance advocates.