Celsius debacle could fuel regulatory risk in DeFi exchanges (Cryptocurrency:UNI-USD)

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After crypto lending platform Celsius froze customer withdrawals earlier this week amid heightened market volatility, decentralized exchanges like Uniswap Protocol could be faced with increased regulatory scrutiny.

Since Uniswap is decentralized, it’s “exempt from the regulatory oversight that centralized exchanges receive,” Bank of America analyst Alkesh Shah wrote in a note Tuesday.

Uniswap, an automated market maker that facilitates token swapping by replacing order books with liquidity pools, “may be required to register with the SEC as a National Securities Exchange or broker-dealer,” Shah noted, adding that the securities agency in February proposed changes to the Exchange Act that would broaden the definition of an exchange in a move that was “likely intended to bring decentralized exchanges into its framework.”

Furthermore, “if Uniswap is required to register as a broker-dealer, like Coinbase (NASDAQ:COIN), it would be obligated to provide disclosures, including specific risks, for each of the thousands of tokens available on its platform,” the note said. Both registration and regulatory compliance are costly since they would require a large boost to headcount, Shah warned.

Meanwhile, UNI (UNI-USD +3.5%), the native governance token of the Uniswap Protocol, is rising slightly to $3.77 as of shortly before 12:00 p.m. ET, but down nearly 25% M/M and off more than 90% from its peak in May 2021 as crypto winter sets in.

Take a look at CoinMarketCap’s list of major decentralized exchanges that may be impacted by regulatory scrutiny.

Earlier this week (June 13) crypto exchange Binance temporarily halted bitcoin withdrawals.