Crypto Organisations Push Back
A coalition of crypto organisations has criticised Citadel Securities for urging the US Securities and Exchange Commission to impose stricter regulations on decentralised finance platforms trading tokenised stocks. The DeFi Education Fund, Andreessen Horowitz, the Uniswap Foundation and The Digital Chamber joined forces in a letter to the SEC on Friday, aiming to correct what they described as “factual mischaracterisations and misleading statements” in Citadel’s earlier correspondence.
Citadel Calls for Tighter Oversight
Earlier this month Citadel had written to the SEC, requesting that decentralised finance platforms not be granted broad exemptions when offering trading in tokenised US equities. Citadel argued that these platforms could fall under the definition of an exchange or broker-dealer, making them subject to securities regulations. The firm warned that exempting DeFi platforms could result in inconsistent regulatory regimes, potentially undermining the SEC’s technology-neutral approach and reducing investor protections.
Crypto Groups Dispute Analysis
The coalition responded by stating that Citadel’s analysis of securities law was flawed, attempting to extend registration requirements to any entity with even a tangential connection to a DeFi transaction. While acknowledging shared goals of investor protection and market integrity, the group argued that such objectives do not always require traditional SEC registration. They suggested that in certain cases these aims could be achieved through carefully designed onchain markets.
Practical Challenges of Regulation
The letter highlighted practical difficulties in regulating decentralised platforms under existing securities laws. The organisations said applying such rules to DeFi platforms could inadvertently cover a broad range of onchain activities not traditionally considered exchange services. They also challenged Citadel’s assertion that autonomous software functions as a financial intermediary, emphasising that software lacks independent discretion and cannot act as a middleman in transactions.
DeFi Innovation and Investor Protection
The group defended DeFi technology, describing it as an innovation designed to manage market risks and improve resilience differently to traditional finance systems. They argued that decentralised finance offers unique forms of investor protection not available in conventional financial markets. By contrast, Citadel contends that tokenised shares on DeFi platforms would lack essential safeguards such as venue transparency, market surveillance and volatility controls, potentially placing investors at risk.
Industry Response and SEC Consultation
Citadel’s letter generated significant backlash from the crypto community. Summer Mersinger, CEO of the Blockchain Association, described the proposal as an “overbroad and unworkable approach.” The correspondence comes amid the SEC’s ongoing consultation on the regulation of tokenised stocks. SEC chair Paul Atkins has indicated that tokenisation could become an accepted feature of the US financial system within a few years.
Regulatory Impact on Market Growth
The debate coincides with a surge in interest around tokenisation, which has gained substantial momentum this year. Analysts warn that the full potential of assets moving onchain may not materialise until clear regulatory frameworks enable deeper integration with DeFi ecosystems. NYDIG recently noted that regulatory clarity is critical for these innovations to deliver meaningful benefits to the broader crypto market.
Conclusion
The clash between Citadel and the crypto organisations underscores ongoing tensions between traditional finance perspectives and the emerging decentralised economy. As the SEC considers its approach to tokenised stocks, the outcome will have significant implications for how DeFi platforms operate, investor protections are ensured and the technology continues to develop.
