Citadel Securities Urges SEC to Tighten DeFi Regulations on Tokenized Stocks

According to Cointelegraph, Citadel Securities has called on the Securities and Exchange Commission (SEC) to impose stricter regulations on decentralized finance (DeFi) concerning tokenized stocks. This recommendation has sparked significant backlash from the cryptocurrency community. In a letter to the SEC, Citadel Securities argued that developers of DeFi platforms, smart-contract coders, and self-custody wallet providers should not receive broad exemptions when offering trading of tokenized U.S. equities. The firm contended that DeFi trading platforms likely meet the criteria of an 'exchange' or 'broker-dealer' and should therefore be regulated under existing securities laws if they offer tokenized stocks. Citadel emphasized that granting broad exemptions would create two separate regulatory frameworks for the same security, contradicting the 'technology-neutral' approach of the Exchange Act. The letter was submitted in response to the SEC's request for feedback on regulating tokenized stocks, drawing criticism from the crypto community and blockchain innovation advocates. Jake Chervinsky, a lawyer and board member of the Blockchain Association, expressed skepticism about Citadel's stance, suggesting that the firm opposes innovation that eliminates intermediaries from the financial system. Uniswap founder Hayden Adams also criticized Citadel, implying that traditional financial market makers are resistant to open-source, peer-to-peer technology that lowers liquidity barriers. Summer Mersinger, CEO of the Blockchain Association, warned that regulating software developers as financial intermediaries could undermine U.S. competitiveness and stifle innovation without enhancing investor protection. She urged the SEC to focus on actual intermediaries rather than software developers. In July, Citadel addressed the SEC's Crypto Task Force, asserting that tokenized securities should succeed through genuine innovation and market efficiency rather than regulatory loopholes. The Securities Industry and Financial Markets Association (SIFMA), an industry trade group, echoed Citadel's sentiments, advocating for the same investor protections for tokenized securities as traditional financial instruments. SIFMA highlighted recent crypto market disruptions, such as the October flash crash, as reminders of the importance of established securities regulations. The World Federation of Exchanges also urged the SEC to reconsider its plan to grant an 'innovation exemption' to crypto companies offering tokenized stocks, aligning with the stance taken by SIFMA in July.