Citadel’s Tokenised-Stock Warning Puts DeFi in the Crosshairs of Federal Rulemaking

• Citadel Securities urged the SEC to regulate specific DeFi systems (trading tokenised US equities) as traditional exchanges or broker-dealers.
• The firm warned that a lighter-touch regime could create gaps in compliance and transparency for investors.
• The stance drew backlash from crypto advocates who rejected treating open-source protocol developers like centralised intermediaries.

Citadel Securities has urged US regulators to treat some decentralised finance (DeFi) systems more like traditional market infrastructure, prompting a backlash from crypto advocates.

In a Dec. 2 letter to the US Securities and Exchange Commission (SEC), filed as part of its consultation on how securities laws should apply to crypto trading platforms, Citadel said certain DeFi protocols dealing in tokenised US equities look functionally similar to exchanges or broker-dealers. 

The firm argued that, even when trades are carried out through smart contracts instead of a central operator, the systems still match buyers and sellers under preset rules in ways regulators already oversee in traditional markets.

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Citadel Warns SEC of Potential Transparency and Compliance Gaps

Citadel told the SEC that any lighter-touch regime for DeFi should only be considered after closely examining investor-protection risks. It warned that applying different standards to tokenised and conventional markets could create gaps in transparency and compliance.

The response angered many in the crypto sector once the letter became public. 

The Securities and Financial Markets Association (SIFMA) made a similar warning this week: 

The SEC should exercise great caution to ensure that innovation strengthens rather than weakens the regulatory architecture that tens of millions of American families rely on to save and invest, and that issuers rely on to raise capital. That requires them to evaluate whether exempting participants in tokenized securities markets from securities law registration and other requirements is consistent with protecting investors, serving the public interest, and maintaining fair competition across both tokenized and traditional markets.

Securities and Financial Markets Association (SIFMA)

Uniswap founder Hayden Adams said Citadel’s position effectively treats open-source protocol developers as if they were centralized intermediaries. He also rejected Citadel’s suggestion that DeFi cannot ensure “fair access,” arguing that permissionless systems broaden participation rather than limit it.

Crypto policy commentator “BlockProf” said Citadel was echoing arguments previously made by SEC Chair Gary Gensler in his push to bring DeFi under existing rules, and attacking points raised by SEC Commissioner Hester Peirce in her dissent. 

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