The regulatory battle between DeFi and Wall Street: Who is protecting the market?

【CoinDesk】Wall Street giant Citadel Securities has submitted a lengthy regulatory proposal to the U.S. Securities and Exchange Commission (SEC)—13 pages detailing concerns about decentralized finance ( DeFi ) protocols, especially those involving tokenized securities. Their core argument is straightforward: these on-chain protocols should be subject to registration and regulation like traditional intermediaries.

But the DeFi community is pushing back. Including organizations such as the DeFi Education Fund, Andreessen Horowitz, Digital Chamber, and a certain DEX foundation, they jointly sent a response letter to the SEC, with very blunt language. In the letter, they stated that while both sides agree on goals like investor protection, market order, and market integrity, Citadel’s logic that “registration equals safety” is fundamentally flawed. The DeFi side’s stance is clear: well-designed on-chain markets can fully achieve regulatory objectives without following the traditional registration route.

This confrontation comes at a time of political shifts in the United States. The new administration’s stance on crypto policy is notably different. The White House’s crypto advisor publicly expressed support for protecting software developers and DeFi, giving the DeFi camp a boost.

Citadel’s response sounds somewhat resigned. They emphasize their support for innovation and tokenization but insist they will not do so at the expense of investor protection. Implicitly, they are saying: what we want are stricter standards, not barriers to innovation.

The DeFi coalition hits directly at the core, accusing Citadel’s letter of containing “misstatements of fact and misleading statements.” A spokesperson for the DeFi Education Fund even went further—arguing that Citadel Securities’ concerns are not about DeFi’s security but about protecting their own business. This technological threat jeopardizes their operations and market share; from a business perspective, their doubts are aligned with their own interests.

Behind this debate lies a fundamental disagreement over what constitutes sufficient regulation between traditional finance and on-chain finance. One side insists on the traditional registration system, while the other believes that code and mechanism design can also protect investors. In the current policy environment and regulatory attitude shifts, the outcome of this discussion may reshape the future of DeFi.