U.S. markets maker Citadel Securities has ignited a heated debate over defi regulation with a call for tougher oversight of decentralized finance platforms that trade tokenized securities.
Summary
Citadel presses SEC to treat DeFi like traditional exchanges
In a Tuesday letter to the U.S. Securities and Exchange Commission, Citadel urged the regulator to fully identify all intermediaries involved in trades of tokenized U.S. equities, including decentralized trading protocols. The firm asked the agency not to grant broad exemptive relief from statutory definitions of an “exchange” and a “broker-dealer”.
According to the letter, allowing wide exemptions for DeFi venues that handle tokenized shares would effectively create two different regulatory frameworks for the trading of the same security. That outcome, Citadel argued, would contradict the Exchange Act’s stated goal of a “technology-neutral” regime and would instead favor one type of technology over others.
Citadel maintained that many DeFi systems already meet the legal definition of an exchange because they use non-discretionary methods, including algorithms, to match buyers and sellers. Moreover, it said that several DeFi participants — such as trading apps, wallet providers and automated market makers — often function as broker-dealers by collecting transaction-based fees, implicating broker dealer obligations.
Concerns over exemptions and investor protections
The firm warned that granting sweeping exemptions to tokenized equity trading platforms could undermine investor protection measures that are central to U.S. markets. Those include fair access standards, post-trade transparency requirements, market surveillance rules, anti-front-running protections and other safeguards designed to prevent abusive practices.
Instead of carving out a broad exception from the existing securities exchange classification framework, Citadel’s letter urged the SEC to rely on formal notice and comment rulemaking. However, the firm emphasized that any regulatory updates should still preserve the core protections that currently apply to stock trading venues.
Citadel wrote that realizing the benefits of tokenization will depend on applying the same bedrock principles that support the fairness, efficiency and resilience of U.S. equity markets. That said, the company framed its position as technology-agnostic, arguing that innovation should occur within established regulatory guardrails rather than outside them.
Crypto community backlash and DeFi industry response
The letter triggered swift criticism across the cryptocurrency sector, which has long warned that overly broad regulation of defi could stifle innovation. Uniswap founder Hayden Adams accused Citadel CEO Ken Griffin of “coming for DeFi” by pushing similar recommendations at the SEC for years.
Adams took particular issue with Citadel’s argument that DeFi protocols cannot ensure “fair access.” In an X post, he said it was striking to see that claim coming from what he called the “king of shady TradFi market makers.” Moreover, he argued that open-source, peer-to-peer technology lowers barriers to creating liquidity and challenges entrenched intermediaries in traditional finance.
Blockchain Association CEO Summer Mersinger also pushed back strongly on Citadel’s stance. She urged the SEC to reject what she described as an “overbroad and unworkable” approach to sec defi regulation, warning that it could blur the line between software development and financial intermediation.
Debate over DeFi software and financial intermediaries
In her response, Mersinger argued that Citadel’s interpretation lacks support in the Exchange Act, decades of Commission practice, judicial precedent and common-sense distinctions. However, she stressed that those distinctions are crucial for deciding who should fall under regulation defi frameworks.
She said regulating developers who merely build code as if they were custodians of client assets would harm U.S. competitiveness and drive innovation offshore. Moreover, Mersinger contended that such an approach would not meaningfully enhance investor protections in tokenized markets.
The clash highlights an intensifying policy fight over how far DeFi regulation should reach when applied to tokenization of U.S. securities. As the SEC weighs Citadel’s recommendations and the industry’s rebuttals, the outcome could shape tokenized equities regulation and the future role of decentralized platforms in U.S. capital markets.
For now, Citadel, DeFi builders and crypto policy advocates remain sharply divided over whether decentralized protocols should be folded into the same classification of securities in stock exchange rules that govern traditional venues, or whether a distinct path for innovation is needed.
