Concerns Over Regulatory Exemptions for Tokenized U.S. Equities
Citadel Securities is urging U.S. regulators to proceed with caution as they evaluate whether to grant exemptions that would permit Americans to trade tokenized U.S. equities on decentralized finance (DeFi) platforms. In a comprehensive 13-page letter submitted to the Securities and Exchange Commission (SEC), the firm acknowledged that tokenization has the potential to improve settlement processes, enhance shareholder engagement, and broaden investor choice. However, Citadel Securities emphasized that these benefits can only be fully realized if fundamental investor protections are maintained. The company stated that tokenized shares should prove their value on their own merits, rather than relying on special regulatory dispensations that would place them outside the existing framework governing traditional equities.
DeFi Platforms Function as Exchanges, According to Citadel
A significant point of contention in Citadel's letter addresses the assertion by some crypto proponents that DeFi protocols facilitate direct peer-to-peer trading without intermediaries. Citadel contested this claim, arguing that many DeFi systems effectively meet the legal definition of an exchange. The firm explained that these systems bring together buyers and sellers through established, automated rules. While the underlying technology may differ, Citadel contended that the functional outcome is the same as traditional exchanges.
Let’s be real: if the SEC starts treating every tokenized stock like it’s a security + crypto hybrid, 90 % of the projects die overnight and Citadel just keeps printing money the old way. This letter is self-preservation dressed as innovation.
— Rei (@KyoMemes) December 4, 2025
Furthermore, Citadel highlighted the involvement of various entities within the DeFi ecosystem, including developers, governance bodies, wallet providers, trading applications, automated market makers, and liquidity providers. The firm argued that these groups often perform roles analogous to brokers or dealers, as they are responsible for routing orders, collecting fees, or influencing trade execution.
Opposition to Dual Regulatory Regimes
Citadel also voiced strong opposition to industry requests for broad exemptive relief. The firm warned that granting such relief would lead to the creation of "two separate regulatory regimes" for identical securities: one stringent for traditional markets and a more lenient one for tokenized markets. Citadel argued that this approach would contravene the technology-neutral principles embedded in U.S. securities law and could expose retail investors to unregulated intermediaries. The firm asserted that the SEC lacks the authority to waive essential investor protections associated with exchanges and broker-dealers, underscoring the critical reliance of millions of Americans on equity markets for their retirement security.
Read between the lines of Citadel’s “everyone in crypto is an intermediary” letter to the SEC and you see an attempt to establish standing for a lawsuit once the SEC adopts its long-promised innovation exemption.
TradFi’s about to run the crypto policy playbook circa 2023. Glhf!
— Jake Chervinsky (@jchervinsky) December 5, 2025
Recommendations for a Clear Regulatory Path
In light of these concerns, Citadel recommended that the SEC take several key actions:
- •Identify all intermediaries involved in the trading of tokenized equities, including those operating through DeFi protocols.
- •Avoid granting sweeping exemptions from existing exchange and broker-dealer rules.
- •Utilize formal rulemaking processes and concentrate efforts on improving clearing and settlement mechanisms.
Citadel concluded by stating that innovation should be encouraged but not at the cost of market integrity and investor safety. This submission comes at a time of evolving U.S. regulations, with the SEC recently suggesting that all markets could potentially move on-chain within the next two years.