Market maker Citadel Securities has urged the Securities and Exchange Commission (SEC) to apply stricter oversight to decentralized finance (DeFi) systems that allow trading of tokenized United States equities. The request, submitted in a letter on Tuesday, drew fast criticism from crypto advocates who say the approach would stifle progress in blockchain-based markets.
Citadel told the SEC that developers of decentralized platforms, smart contract coders, and self-custody wallet providers should not receive broad exemptions when they offer access to tokenized stocks. The firm said such platforms match the functions of an exchange or a broker-dealer when they allow trading of equity-based tokens, which would place them under existing securities rules.
Citadel Warns SEC About DeFi Stock Trading
The letter argued that giving DeFi systems special treatment would create two separate rulebooks for the same type of asset. Citadel said this would clash with the technology-neutral approach outlined in the Exchange Act. The comments were filed as the SEC asked the public for input on how it should handle regulation of tokenized shares.
Reactions surfaced quickly across the crypto world. Many users accused Citadel of trying to protect its position in the traditional finance sector. Lawyer and Blockchain Association board member Jake Chervinsky posted on Thursday that it was no surprise to see the firm oppose tools that aim to reduce the role of middlemen.
Uniswap founder Hayden Adams added that it was expected that large market makers in the old system would dislike peer-to-peer software that lets anyone supply liquidity.
Summer Mersinger, head of the Blockchain Association, said treating software creators as if they were financial middlemen would weaken the United States' standing in global markets and push new projects to other countries. She urged the SEC to focus on actual intermediaries rather than those who publish open-source code.
Citadel made earlier comments in July, telling the SEC Crypto Task Force that tokenized securities should grow by offering real improvements for users instead of relying on gaps in regulation.
Trade Groups Join Call for Stricter Oversight
SIFMA, a major industry trade group, issued a statement on Wednesday backing the idea that tokenized stocks must follow the same investor protections as regular shares. The group said disruptions in crypto markets, including the October flash crash, show why long-standing frameworks exist.
This view mirrors SIFMA’s stance from July, when it objected to any broad exemptions for blockchain platforms that deal in token-based assets. The World Federation of Exchanges repeated a similar position in November, asking the SEC to avoid creating an innovation exemption for crypto companies that want to offer tokenized equities.