Market maker Citadel Securities has called on the U.S. Securities and Exchange Commission (SEC) to impose stricter regulations on decentralized finance (DeFi), particularly concerning tokenized stocks. The proposal has sparked significant backlash among crypto advocates, highlighting tensions between traditional financial giants and blockchain innovators.
In a letter to the SEC, Citadel Securities argued that developers of DeFi protocols, smart contracts, and self-custody wallets should not be granted broad exemptions when it comes to trading tokenized U.S. equities. The firm contended that such platforms likely qualify as exchanges or broker-dealers under existing securities laws and, therefore, should be subject to regulatory oversight. Citadel emphasized that offering different regulatory frameworks for the same security via DeFi protocols would contradict the SEC’s “technology-neutral” principles, potentially creating a fragmented market landscape.
The letter was part of the SEC’s broader consultation on regulating asset tokenization, but it was met with sharp criticism from the crypto community. Many see Citadel’s stance as an attempt to preserve the status quo in traditional finance, potentially stifling innovation and decentralized transparency within the blockchain space.
Crypto Advocates Push Back
Jake Chervinsky, a lawyer and blockchain advocate, questioned the motives behind Citadel’s opposition: “Whoever thought Citadel would be against innovation that removes predatory, rent-seeking intermediaries from the financial system?” he asked. Echoing these sentiments, Hayden Adams, founder of Uniswap, remarked that it’s unsurprising for traditional market makers to oppose open-source, peer-to-peer financial technologies that could democratize liquidity.
Summer Mersinger, CEO of the Blockchain Association, criticized Citadel’s approach, warning that regulating developers as financial intermediaries could undermine US competitiveness, hinder innovation, and fail to enhance investor protection. She urged the SEC to focus on regulating actual intermediaries who handle assets, rather than stifling technological development at its source.
In July, Citadel submitted a letter to the SEC’s Crypto Task Force, asserting that tokenized securities should succeed through genuine innovation rather than regulatory arbitrage. Meanwhile, industry groups like the Securities Industry and Financial Markets Association (SIFMA) reinforced the need for consistent investor protections, warning that recent market disruptions serve as a reminder of existing securities laws’ importance.
Additionally, the World Federation of Exchanges in November urged the SEC to abandon proposals for an “innovation exemption” concerning tokenized stocks, emphasizing the importance of safeguarding market integrity and investor confidence amidst rapid technological change.