Wall Street Giant Citadel Faces Crypto Backlash Over DeFi Regulation Push

TLDR

• Citadel Securities asked the SEC to regulate DeFi platforms offering tokenized stocks under securities laws as exchanges or broker-dealers
• A crypto coalition including Andreessen Horowitz and the DeFi Education Fund called Citadel’s arguments “baseless” and “misleading” in a response letter
• The crypto groups argue that autonomous software cannot be a middleman and that DeFi platforms work differently than traditional exchanges
• Citadel claims exempting DeFi from securities laws would create two regulatory systems for the same assets and harm investor protections
• The debate comes as SEC chair Paul Atkins says the US financial system could embrace tokenization within a couple of years

Citadel Securities and major crypto organizations are fighting over how the Securities and Exchange Commission should regulate decentralized finance platforms that handle tokenized stocks. The dispute centers on whether DeFi protocols should face the same rules as traditional exchanges.

Citadel Securities sent a 13-page letter to the SEC earlier this month. The investment firm argued that DeFi platforms offering tokenized US equities should register as exchanges or broker-dealers under securities laws.

The company said giving DeFi platforms “broad exemptive relief” would create problems. Citadel warned this approach would establish two separate regulatory systems for trading the same security.

A coalition of crypto groups responded on Friday with their own letter to the SEC. The DeFi Education Fund, Andreessen Horowitz, the Uniswap Foundation, The Digital Chamber, Orca Creative, and lawyer J.W. Verret signed the response.

The crypto coalition called Citadel’s arguments “baseless” and accused the firm of making “several factual mischaracterizations and misleading statements.” They said they share Citadel’s goals of protecting investors and maintaining market integrity.

However, the groups disagreed that DeFi platforms must register as traditional SEC intermediaries. They argued that thoughtfully designed onchain markets can meet these goals through different methods.

DeFi Groups Challenge Citadel’s Arguments

The groups took issue with Citadel calling autonomous software an intermediary. They said software cannot be a middleman because it is not a person capable of exercising independent discretion or judgment.

The company added that innovation should not require “sacrificing the rigorous investor protections that have made U.S. equity markets the global gold standard.” Citadel argued that DeFi platforms without regulation lack protections like venue transparency, market surveillance, and volatility controls.

SEC Seeks Industry Input on Tokenization Rules

The exchange of letters comes as the SEC collects feedback on how to regulate tokenized stocks. SEC chair Paul Atkins recently said the US financial system could embrace tokenization in a couple of years.

The new SEC leadership under President Donald Trump has been looking for ways to give the crypto industry more regulatory flexibility. White House crypto adviser Patrick Witt posted on social media that his office supports protecting software developers and DeFi.

DeFi Education Fund spokeswoman Jennifer Rosenthal suggested Citadel has business reasons for its stance. “It is convenient for Citadel to question the existence of a technology that threatens its business and market share,” Rosenthal said.

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