Citadel Securities has urged the Securities and Exchange Commission to reject broad exemptions for decentralized finance platforms that trade tokenized US equities, warning that such relief would create two separate regulatory regimes for identical securities. The firm said DeFi systems already operate like exchanges and broker-dealers under existing law. Crypto industry figures pushed back as the SEC evaluated feedback on exemptive relief.
Citadel argued that wide exemptions for DeFi venues would break the SEC’s “technology-neutral” framework. The firm said identical stocks cannot trade under different rules. It said many DeFi platforms use non-discretionary tools that match buyers and sellers. These systems mirror key functions of regulated exchanges.
The company added that some apps, wallets, and automated market makers collect transaction fees. That activity fits broker-dealer activity under federal law. Citadel also said smart contracts often act like binding agreements. Orders placed through those contracts operate like orders submitted to traditional markets.
The firm warned that exempting tokenized equity trading could produce gaps in transparency. It pointed to missing fee disclosures and limited visibility on conflicts of interest. Citadel also noted potential gaps in market surveillance and compliance. It linked those issues to custody risks and operational weaknesses across decentralized platforms.
The company stated that tokenized securities require treatment equal to traditional shares. It added that innovation cannot bypass existing protections tied to US markets. This raised a central question: Can DeFi systems advance without weakening the protections that shape US equity trading?
Crypto industry voices criticized Citadel’s stance soon after the letter circulated publicly. Some said the firm adopted the posture of former SEC Chair Gary Gensler. Variant CLO Jake Chervinsky posted a pointed response. He said the industry expected Citadel to resist models that remove intermediaries.
He suggested that Citadel’s position aligns with its broader business interests. He did not contest the substance of the letter but focused on market dynamics. Other industry members noted recent internal shifts at Citadel. Two former general counsels left the firm for crypto companies shortly before the letter.
Additional attention followed a disclosure from Citadel CEO Ken Griffin. He recently took a significant stake in DeFi Development Corp, a Solana-focused treasury firm. Observers said the mix of regulatory pressure and corporate activity added complexity to the ongoing debate. The letter arrived as tokenization efforts gained momentum across multiple blockchain networks.
Industry participants argued that DeFi creates new efficiency tools. Yet they said regulation should evolve instead of reverting to older frameworks. Some developers said strict alignment with traditional rules could slow tokenization. They argued that innovation cannot advance without workable compliance guidance.
The exchange between Citadel and DeFi advocates reflects rising tension over how far regulation should reach. Both sides invoked investor protection but offered different paths. Citadel urged the SEC to use formal notice-and-comment rulemaking. It said updates must preserve the core protections of US equity markets.
The firm cited fair access standards, post-trade transparency, and anti-front-running rules. It said these measures prevent abusive conduct. DeFi developers said those rules cannot apply perfectly to decentralized systems. They said technical differences require tailored oversight.
Crypto policy advocates said decentralized platforms often run without intermediaries. That design creates challenges for frameworks built around defined entities. Policymakers now face competing interpretations of how to regulate tokenized assets. The choices they make could influence the next stage of digital market evolution.
The clash shows how differently traditional firms and DeFi projects view the role of exchanges. It also shows how fast tokenization is pressuring old rules. For now, both groups remain divided. They continue to debate whether decentralized equity markets should remain under the same exchange classification used for traditional venues or follow a distinct regulatory path.
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Citadel Securities rejects broad DeFi exemptions and urges the SEC to apply consistent rules for tokenized equities to protect market integrity. Industry figures contest this position as tokenization grows. The debate now challenges regulators and developers to find a path that supports innovation while maintaining investor protection.