Citadel urges SEC to regulate DeFi developers as broker-dealers for tokenized stock platforms

Market-making giant Citadel Securities has urged the U.S. Securities and Exchange Commission to classify developers, smart contract coders, and wallet providers as broker-dealers when they facilitate tokenized equity trading on decentralized platforms—a sweeping regulatory proposal that has triggered intense backlash from crypto industry leaders.

In a comment letter filed with the SEC, Citadel argued that DeFi platforms offering tokenized U.S. stocks meet the legal definition of “exchange” or “broker-dealer” under federal securities laws, and should not receive special exemptions simply because they use blockchain technology.

Crypto community pushes back

“As expected, Citadel isn’t supporting innovation that eliminates the predatory, rent-seeking middlemen it benefits from.”

Joked Blockchain Association board member Jake Chervinsky, responding to Citadel’s recommended DeFi regulations. He added that the firm’s resistance to decentralized models was unsurprising to anyone familiar with traditional market structures.

Uniswap founder Hayden Adams echoed the sentiment, saying it was expected that a major TradFi market maker would oppose open source  permission less systems that challenge their dominance.

Blockchain Association CEO Summer Mersinger strongly objected to Citadel’s proposal noting that imposing heavy DeFi regulations on software developers would drive talent offshore and fail to improve investor protection. Instead, she urged the SEC to focus on intermediaries that actually take custody of user assets.

Citadel has maintained its position since July, stating that tokenized securities must succeed through genuine innovation not by exploiting gaps in DeFi regulations or engaging in regulatory arbitrage.

SIFMA aligns with Citadel on the need for consistent rules

The Securities Industry and Financial Markets Association (SIFMA) issued a supporting statement underscoring that any tokenized securities should be governed by the same fundamental investor protections applied in traditional finance. According to SIFMA, recent market disruptions including the October flash crash highlight why effective DeFi regulations remain essential for market stability.

The group reaffirmed its stance from July urging the SEC not to create carve outs or exemptions for DeFi protocols issuing tokenized assets. Likewise, the World Federation of Exchanges in November urged the SEC to abandon its plan for an “innovation exemption” for crypto firms, warning that fragmented DeFi regulations could weaken investor protections.

As the SEC continues gathering input, the debate over how far DeFi regulations should extend especially regarding tokenized stocks remains one of the most contentious policy battles between traditional finance and the blockchain industry.