Citadel Securities is pushing the SEC to apply full exchange and broker-dealer requirements to DeFi protocols, rejecting calls for lighter rules for tokenized trading platforms.
Regulators Face Pressure To Treat DeFi As Traditional Market Intermediaries
Citadel told the SEC that DeFi platforms involved in trading tokenized U.S. equities should not receive broad exemptions from federal exchange definitions.
The firm said decentralized protocols often match buyers and sellers using non-discretionary algorithms, which it argued aligns with the statutory definition of an exchange.
The letter said many DeFi participants act as broker-dealers when they receive transaction-based compensation.
Citadel warned that granting exemptions would create two inconsistent regulatory regimes for the same securities, violating the Exchange Act's technology-neutral principles.
Fair Access And Market Integrity Are Core Themes In Citadel's Argument
Citadel said exemptions could weaken fair access, post-trade transparency, market surveillance, and anti-front-running protections.
The firm urged the SEC to use formal rulemaking rather than carve-outs that reduce oversight for digital trading protocols.
The company said tokenization will only succeed if existing investor protections remain intact.
It argued that DeFi exchanges must meet the same standards as traditional trading venues to ensure market stability.
Crypto Community Accuses Citadel Of Targeting Open Finance
The letter drew immediate backlash across the cryptocurrency sector.
Uniswap (CRYPTO: UNI) founder Hayden Adams said Citadel has been lobbying against DeFi for years, accusing the firm of undermining open-source systems that reduce barriers to liquidity creation.
He said it was ironic that Citadel raised concerns about "fair access," given its dominant role in traditional market making.
Adams framed the move as an attempt to suppress decentralized competition that challenges legacy trading structures.
Blockchain Association CEO Summer Mersinger also rejected Citadel's interpretation.
She said the firm's argument lacks grounding in the Exchange Act, judicial precedent, or Commission practice, adding that developers who build software should not be regulated like custodial financial intermediaries.
Industry Warns Of Innovation Flight If SEC Follows Citadel's Path
Mersinger said regulating developers as broker-dealers would harm U.S. competitiveness and push innovation offshore.
She argued that the approach offers no meaningful benefit to investor protection.
Industry leaders said the SEC should reject proposals that classify coding activity as financial intermediation.
It isn't immediately clear how the SEC will respond to Citadel's push.
The agency has signaled interest in tightening oversight of tokenized assets, but it has not indicated whether it will pursue exemptions or full regulatory treatment.
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