.png){kind=logo}
On December 13, Citadel Securities asked the US Securities and Exchange Commission to enforce rules on DeFi protocols handling tokenized securities. The request triggered immediate resistance from blockchain industry groups. The dispute centers on whether existing securities laws apply to decentralized systems and software developers. The outcome could shape innovation paths and US competitiveness in blockchain markets.
Citadel submitted a 13-page letter to the SEC calling for stricter oversight of DeFi platforms that support tokenized stock trading. The firm argued that such platforms function like traditional securities intermediaries. As a result, it urged the SEC to require registration and compliance with existing safeguards.
Soon after, industry organizations responded. The Blockchain Association and the DeFi Education Fund led the opposition. They rejected Citadel’s interpretation and warned of broad consequences for open-source development.
Citadel Securities stated that current rules fail to address risks tied to blockchain-based equity products. It claimed that tokenized stock trading closely mirrors the structures of traditional securities trading. Therefore, it said familiar investor protections should apply.
The firm cited concerns involving liquidity management and settlement processes. It also raised issues around investor protection standards. Citadel warned that fragmented markets could emerge without consistent SEC rules for tokens.
Traditional market participants echoed similar views. They argued that more precise regulation could attract institutional capital. In their view, regulatory certainty would reduce confusion and stabilize tokenized markets.
Blockchain industry groups strongly disputed Citadel’s position. The Blockchain Association said the proposal lacks legal grounding. It cited decades of SEC practice and judicial precedent in its response.
Summer Mersinger, the association’s CEO, said Citadel’s claims misclassify software creators. She stated that developers neither custody assets nor operate as intermediaries. She added that the code qualifies as protected speech under the First Amendment.
The association warned that regulating developers like financial institutions could drive innovation overseas. It said such actions would weaken US competitiveness. The group also argued that the approach would fail to improve investor protection.
Read More: Citadel Securities Challenges Broad DeFi Relief for Tokenized Equities
DeFi leaders described tokenized trading as structurally different from traditional finance. They said these platforms rely on smart contracts and peer-to-peer settlement. Transparency replaces centralized control in these systems.
They argued that no single entity governs these protocols. As a result, rules designed for intermediaries fail to fit decentralized environments. Applying those rules could introduce inefficiencies and new risks.
Developers also raised concerns about the pace of innovation. They warned that heavy enforcement could slow experimentation. Many said projects might relocate outside the United States under strict regulatory pressure.
Both sides agree that tokenized markets will expand. The disagreement centers on the regulatory approach. DeFi groups favor dialogue-driven frameworks over enforcement-first strategies. They proposed sandbox programs and technical consultations with regulators. This approach would allow policy to evolve alongside technology. Should regulation treat decentralized code as a financial intermediary?
Citadel Securities called on the SEC to regulate DeFi platforms handling tokenized securities. Blockchain groups rejected the proposal, citing legal precedent and innovation risks. The dispute reflects growing tension over how US regulators should approach decentralized markets as tokenized trading expands.
