Citadel Securities Urges SEC to Tighten Regulations on DeFi Tokenized Stocks, Sparking Crypto Backlash

Citadel Securities Calls for Increased Scrutiny of DeFi Tokenized Stocks

Market maker Citadel Securities has advised the Securities and Exchange Commission (SEC) to implement stricter regulations on decentralized finance (DeFi) in the context of tokenized stocks. This recommendation has ignited a wave of criticism from cryptocurrency users. In a letter addressed to the SEC on Tuesday, Citadel Securities stated that DeFi developers, smart contract coders, and self-custody wallet providers should not be granted "broad exemptive relief" when offering trading services for tokenized U.S. equities. The firm argued that DeFi trading platforms are likely to fall under the definitions of an "exchange" or "broker-dealer" and, as such, should be regulated under existing securities laws if they facilitate the trading of tokenized stocks. "Granting broad exemptive relief to facilitate the trading of a tokenized share via DeFi protocols would create two separate regulatory regimes for the trading of the same security," Citadel Securities argued. "This outcome would be the exact opposite of the 'technology-neutral' approach taken by the Exchange Act."

Crypto Community Reacts to Citadel's Stance

Citadel's letter, which was submitted in response to the SEC's request for feedback on regulating tokenized stocks, has provoked considerable opposition from the crypto community and organizations that support innovation in the blockchain sector. Jake Chervinsky, a lawyer and board member of the Blockchain Association, questioned, "Whoever thought Citadel would be against innovation that removes predatory, rent-seeking intermediaries from the financial system?" He sarcastically added, "Oh, right, literally every single person in crypto." Uniswap founder Hayden Adams commented that it "makes sense the king of shady TradFi market makers doesn’t like open source, peer-to-peer tech that can lower the barrier to liquidity creation." Summer Mersinger, CEO of the crypto advocacy group the Blockchain Association, warned that "regulating software developers as if they were financial intermediaries would undermine U.S. competitiveness, drive innovation offshore, and do nothing to advance investor protection." Mersinger further urged the SEC to "reject this overbroad and unworkable approach and instead focus regulatory attention on actual intermediaries who stand between users and their assets."

SIFMA Echoes Concerns, Urges No DeFi Carve-Out

The Securities Industry and Financial Markets Association (SIFMA), a trade group representing the securities industry, issued a similar statement on Wednesday. While supporting innovation, SIFMA emphasized that tokenized securities should be subject to the same fundamental investor protections as traditional financial assets. SIFMA argued that recent disruptions in crypto markets, including the flash crash in October, serve as "timely reminders of why long-standing securities regulatory frameworks designed to preserve market quality and protect investors were originally created." The statement aligns with SIFMA's stance from July, which rejected any SEC exemptive relief for blockchain and DeFi platforms that issue tokenized assets. In November, the World Federation of Exchanges, which represents major stock exchanges globally, also urged the SEC to abandon its plan to grant an "innovation exemption" to crypto companies seeking to offer tokenized stocks.