Citadel vs DeFi Heats Up as Crypto Giants Challenge SEC Pressure

• Citadel’s SEC push sparks resistance from DeFi giants defending decentralized market structures
• Crypto leaders warn strict DeFi rules could mislabel software as financial intermediaries
• Tokenized markets fuel showdown between Wall Street powerhouses and decentralized finance advocates

A regulatory dispute is intensifying as Citadel Securities urges the US Securities and Exchange Commission to impose stricter oversight on decentralized finance platforms. Citadel argues that DeFi protocols facilitating tokenized US equities closely resemble traditional market structures and therefore should be regulated like brokers or exchanges.

The firm warns that regulatory ambiguity risks weakening investor protections and creating inconsistent standards between conventional finance and blockchain-based markets. Crypto analyst Walter Peppenberg suggested Citadel’s stance reflects concern over losing influence as DeFi enables direct peer-to-peer trading, threatening lucrative market-making revenues.

In response, major crypto organizations have pushed back. Groups including the DeFi Education Fund, Andreessen Horowitz, The Digital Chamber, and the Uniswap Foundation submitted a joint letter disputing the SEC’s interpretation of on-chain markets. They contend that DeFi protocols are fundamentally different, operating as autonomous software rather than managed intermediaries.

According to the coalition, users retain custody of their assets and transact directly on-chain without centralized control. They also caution that expanding broker definitions to software could create enforcement issues and unfairly target developers who never handle customer funds.

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SEC Pressure Collides With DeFi Structure

Meanwhile, the SEC continues signaling an effort to balance enforcement with innovation. Chair Paul Atkins has emphasized adapting existing regulations to emerging technologies rather than blocking progress outright. At the same time, tokenization is gaining momentum as financial firms explore issuing equities and bonds on blockchains, with proponents arguing it could reduce settlement times and infrastructure costs.

However, applying legacy regulatory frameworks to decentralized systems remains contentious. Crypto advocacy groups have urged the SEC to distinguish between traditional intermediaries and permissionless protocols that operate without centralized control.

Citadel rejected claims of self-interest, reaffirming support for tokenization while warning that broad exemptions for DeFi could expose investors to unmanaged risks. The dispute highlights a growing divide between traditional finance and decentralized markets, with regulatory definitions likely shaping the future of both tokenization and DeFi.

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