Citadel Warns SEC That Tokenized Equity Trading in DeFi “Undermines” U.S. Market Rules

Citadel urges the SEC to deny broad DeFi exemptions, saying they function like regulated exchanges.

Crypto groups argue Citadel’s stance could classify developers as intermediaries and hinder innovation.

Industry voices warn stricter rules may hurt U.S. competitiveness as tokenized markets continue to grow.

Citadel Securities is urging the U.S. Securities and Exchange Commission to tighten oversight of decentralized finance platforms that support trading of tokenized securities, triggering swift criticism across the crypto sector.

Citadel Urges the SEC to Reject Exemptions for DeFi Platforms

Citadel Securities told the Securities and Exchange Commission that DeFi systems facilitating tokenized U.S. equities should not receive broad exemptive relief. The firm’s letter argued that such platforms operate in ways that meet the definitions of an exchange or broker-dealer under federal securities laws

It said the use of automated methods to match buyers and sellers places them within the existing framework. Citadel wrote that allowing exemptions would “create two separate regulatory regimes” for the same security and would conflict with the Exchange Act’s “technology-neutral” approach

The firm added that wallet providers, trading apps, and automated market makers may also receive forms of transaction-based compensation that resemble broker-dealer functions. The company stated that broad relief would weaken rules on fair access, post-trade reporting, market surveillance, and anti-front-running measures. It encouraged the SEC to pursue rulemaking rather than carve-outs when regulating tokenized equity markets.

Crypto Advocacy Groups Push Back Against Citadel’s Position

The reaction from the crypto sector was sharp. Uniswap founder Hayden Adams said it was expected that a major market-making firm would resist open-source trading models. He argued that peer-to-peer systems lower barriers to liquidity creation in ways that challenge traditional structures.

Blockchain Association CEO Summer Mersinger said Citadel’s interpretation would treat software developers as financial intermediaries. She wrote that such an approach would push development overseas and would not improve user protection. She added that the Exchange Act does not support treating coders and protocol designers as regulated actors.

Other industry groups shared similar concerns. They said the proposal could reduce U.S. competitiveness during a period when tokenized financial products are expanding. Meanwhile, SIFMA issued a separate statement urging the SEC to maintain long-standing investor protections and to apply the same standards to tokenized stocks as to traditional securities.

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