Regulatory Scrutiny on Decentralized Finance
Citadel Securities has urged the Securities and Exchange Commission (SEC) to implement stricter regulations on decentralized finance (DeFi) platforms that offer tokenized U.S. stocks. The firm has argued against granting exemptive relief to DeFi developers and smart contract coders, advocating for a more comprehensive regulatory approach.
Citadel's Argument to the SEC
In a letter submitted to the SEC on Tuesday, Citadel Securities stated that DeFi trading platforms likely qualify as exchanges or broker-dealers under existing securities laws. The firm contended that platforms facilitating the trading of tokenized stocks should be subject to the same regulatory requirements as traditional financial intermediaries. Citadel warned against the creation of separate regulatory frameworks for tokenized shares traded via DeFi protocols, arguing that such an approach would contradict the technology-neutral stance established by the Exchange Act and lead to inconsistent oversight.
Industry Reactions to Citadel's Stance
The letter from Citadel Securities was submitted as part of the SEC's public feedback process concerning the regulation of tokenized stocks. Citadel's position has drawn immediate criticism from crypto advocates and industry organizations focused on blockchain innovation. Blockchain Association CEO Summer Mersinger stated that treating software developers as financial intermediaries would harm U.S. competitiveness and potentially push innovation overseas. She further added that this approach fails to advance investor protection while simultaneously undermining technological progress.
Lawyer Jake Chervinsky questioned whether anyone expected Citadel to support innovation that removes rent-seeking intermediaries from the financial sector. Similarly, Uniswap founder Hayden Adams suggested that the traditional market maker opposes open-source, peer-to-peer technology that has the potential to lower the barrier to liquidity creation.
Broader Industry Concerns and Precedents
The Securities Industry and Financial Markets Association released a statement on Wednesday that echoed Citadel's concerns. The group expressed support for innovation but insisted that tokenized securities must maintain traditional investor protections. The association cited the flash crash in October as evidence for the necessity of maintaining established regulatory frameworks. This sentiment aligns with Citadel's previous communication to the SEC's Crypto Task Force in July, where the firm argued that tokenized securities should succeed through genuine innovation rather than regulatory arbitrage. The World Federation of Exchanges also urged the SEC in November to abandon plans for innovation exemptions on tokenized stocks.