- Trending
- Comments
- Latest
Three cryptocurrency industry organizations submitted a letter to the Securities and Exchange Commission this week challenging Citadel Securities’ recent proposal for regulatory oversight of decentralized finance platforms that offer tokenized stocks.
The Uniswap Foundation, DeFi Education Fund, and Digital Chamber argue that applying traditional securities exchange registration requirements to DeFi protocols would be ‘impracticable’ and based on what they call a ‘flawed legal analysis.’
Citadel Securities, however, contends that allowing tokenized equities trading on unregistered DeFi platforms would ‘undermine’ securities laws designed to protect investors.
The dispute centers on a fundamental question: whether decentralized protocols that enable securities trading should be subject to the same oversight as traditional stock exchanges like Nasdaq and NYSE, or whether their technological differences warrant alternative regulatory approaches.
The coalition’s response directly addresses a letter Citadel submitted earlier this month, urging the SEC to deny what it described as “broad exemptive relief” for DeFi platforms that enable trading of tokenized U.S. equities.
Citadel argued that many DeFi platforms could qualify as regulated “exchanges” or “broker-dealers” under existing securities laws. But crypto groups say that interpretation dangerously stretches the law.
Citadel’s letter rests on a flawed analysis of the securities laws that attempts to extend SEC registration requirements to essentially any entity with even the most tangential connection to a DeFi transaction, the group wrote.
The pushback underscores a growing fault line in the DeFi tokenization rule debate: how to balance innovation with investor protection without forcing decentralized systems into centralized regulatory boxes.
Notably, the crypto coalition emphasized that it shares Citadel’s stated goals of protecting investors and ensuring market integrity.
However, it rejected the notion that traditional SEC registration is always necessary to achieve those outcomes.
We disagree that achieving these goals always necessitates registration as traditional SEC intermediaries and cannot, in certain circumstances, be met through thoughtfully designed onchain markets, the letter stated.
This argument strikes at the heart of the DeFi tokenization rule controversy—whether onchain systems can offer safeguards that differ from, yet rival, traditional financial infrastructure.
The group warned that applying securities laws to decentralized platforms would be impracticable given how DeFi protocols function.
According to the letter, such an approach could sweep in a vast range of onchain activities that have never been considered exchange services.
One of the sharpest criticisms targeted Citadel’s claim that autonomous software acts as a financial intermediary. The crypto groups dismissed that framing outright.
Autonomous software cannot be a ‘middleman’ in a financial transaction because it is not a person capable of exercising independent discretion or judgment, the letter argued.
They further claimed DeFi was specifically designed to mitigate market risks differently from traditional finance, adding that DeFi protects investors in ways that traditional finance cannot.
Citadel, however, remains firm. In its original submission, the firm warned that allowing tokenized equities on DeFi platforms without applying securities laws would create two separate regulatory regimes for the trading of the same security.
The firm also argued this would undermine the Exchange Act’s “technology-neutral” framework and expose investors to risks due to the absence of transparency, market surveillance, and volatility controls.
Blockchain Association CEO Summer Mersinger labeled Citadel’s stance an overboard and unworkable approach echoing broader concerns that the DeFi tokenization rule could be weaponized against decentralized innovation.
The letters arrive as the SEC actively seeks public input on regulating tokenized stocks. SEC Chair Paul Atkins has suggested the U.S. financial system could meaningfully embrace tokenization within a couple of years, signaling regulatory momentum is building.
Tokenization activity has surged in 2024, but NYDIG recently cautioned that assets moving onchain won’t fully benefit crypto markets until regulations allow deeper DeFi integration.
That warning adds urgency to the DeFi tokenization ruledebate, which could shape the future of onchain capital markets.
As regulators weigh competing narratives, the clash between Citadel and crypto leaders may define how far decentralized finance is allowed to go—and whether tokenization becomes a breakthrough or a battleground.
