Uniswap Faces Legal Action from Bancor Over DeFi Technology
The developer of the decentralized exchange Bancor has initiated legal proceedings against Uniswap, claiming ownership of intellectual property that is fundamental to decentralized finance (DeFi). Filed in New York, the lawsuit asserts that Bancor holds two patents which they argue represent the initial designs for smart contracts that enable seamless transactions between buyers and sellers in a decentralized setting.
The suit accuses Uniswap, currently the second-largest decentralized exchange and seventh overall by trading volume, of substantially violating their intellectual property rights. Bancor emphasizes that their invention substitutes traditional order books and market makers found in centralized exchanges with an innovative framework of smart contracts that function as an “automatic market maker” for decentralized platforms. This breakthrough is recognized as a significant advancement in cryptocurrency and is integral to the operation of the Uniswap Protocol.
The patents in question are U.S. patent numbers 11107049 and 11574291, both entitled ‘Methods for exchanging and evaluating virtual currency.’ Bancor describes these patents as addressing the challenges faced when establishing a decentralized exchange, particularly regarding asset valuation without intermediaries. The lawsuit elaborates that while the value of a currency is typically determined through transactions between willing participants, this method becomes impractical when applied to a diverse range of token types, especially those with limited or no trading volume.
According to the lawsuit, the contested patents propose a constant product automatic market maker (CPAMM) utilizing smart contracts, enabling the valuation of tokens independently of transactions between two consenting parties, a method traditionally used by centralized exchanges. While these patents were granted in 2021, the plaintiffs assert that the underlying invention dates back to 2016, with provisional patents filed in 2017. Bancor publicly unveiled their solution at the Community Ethereum Development Conference in February 2017.
The lawsuit further alleges that Vitalik Buterin, the founder of Ethereum, who is not named as a defendant, engaged with and endorsed Uniswap’s use of this technology, despite Bancor claiming that their proposal was previously presented to Buterin and declined in 2017. Instead of adopting Bancor’s concept, Buterin collaborated with Hayden Adams, the founder of Uniswap, to develop a competing decentralized exchange leveraging the same idea, eventually leading to Uniswap’s creation.
Bancor is pursuing both injunctions against Uniswap and triple damages, asserting that Uniswap’s actions were “willful” and “egregious.” In a statement, Bancor articulated its long-standing objective to introduce groundbreaking innovations to the DeFi sector. They assert that when an entity consistently employs their patented technology without consent to compete against them, legal action becomes necessary. Bancor claims that for the past eight years, Uniswap has utilized their patented innovations without authorization, prompting them to defend their technology for the benefit of the entire DeFi ecosystem.
In response to the lawsuit, Adams referred to it as “possibly the dumbest thing” he has ever encountered.
