In a significant move, market maker Citadel Securities has called for the SEC to implement stricter regulations on decentralized finance (DeFi) platforms that facilitate the trading of tokenized stocks. This recommendation was articulated in a letter submitted to the SEC on Tuesday, where Citadel argued against offering “broad exemptive relief” to developers and providers involved in trading tokenized US equities.
Citadel contended that these DeFi platforms likely meet the criteria of an “exchange” or “broker-dealer,” necessitating compliance with existing securities laws when dealing in tokenized stocks. The firm expressed concern that allowing such broad exemptions could lead to regulatory inconsistencies, stating, “Granting broad exemptive relief to facilitate the trading of a tokenized share via DeFi protocols would create two separate regulatory regimes for the trading of the same security.”
This letter was part of the SEC”s broader request for feedback regarding the regulation of tokenized stocks and has sparked strong reactions within the cryptocurrency community. Notably, lawyer and board member of the Blockchain Association, Jake Chervinsky, criticized Citadel”s stance, remarking, “Whoever thought Citadel would be against innovation that removes predatory, rent-seeking intermediaries from the financial system?”
Responses from the industry highlighted a growing concern about overregulation. Hayden Adams, founder of Uniswap, commented on the irony of traditional finance entities opposing open-source technologies that democratize access to liquidity. Furthermore, Summer Mersinger, CEO of the Blockchain Association, voiced her apprehension that treating software developers as financial intermediaries could stifle US competitiveness and drive innovation offshore.
The Securities Industry and Financial Markets Association (SIFMA) echoed the need for investor protections akin to those in traditional finance while also supporting innovation within the space. Citadel had previously advised the SEC”s Crypto Task Force in July that any tokenized securities must provide “real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage.”
This ongoing debate reflects the tension between traditional financial institutions and the rapidly evolving DeFi landscape, as regulatory bodies grapple with how to integrate these new technologies within existing frameworks.
