A coalition of decentralized finance (DeFi) advocates has fired back at Citadel Securities’ proposal urging the U.S. Securities and Exchange Commission (SEC) to impose stricter regulatory requirements on DeFi platforms handling tokenized securities, saying the analysis behind the call is flawed and risks stifling innovation.
Several prominent DeFi organizations have jointly responded to a recent letter from Citadel Securities urging the SEC to tighten regulations for decentralized platforms that facilitate trading in tokenized U.S. equities and other digital securities. The DeFi Education Fund, Andreessen Horowitz, the Uniswap Foundation, and a number of other industry groups signed the rebuttal letter, rejecting key points in Citadel’s argument.
Citadel’s letter argued that DeFi platforms handling tokenized securities should not be granted broad exemptions from traditional securities laws. The firm contended that decentralized markets that bring together buyers and sellers of tokenized shares could be considered exchanges or broker-dealers and should therefore comply with established registration requirements under U.S. law.
According to Citadel, allowing exemptions could lead to two separate regulatory regimes governing the same asset, potentially weakening investor protection and market integrity.
Conflict between traditional finance regulation and decentralized markets
In their response, the coalition of DeFi advocates described Citadel’s interpretation of securities law as fundamentally flawed and overly broad, warning that it would effectively extend SEC registration obligations to any participant with even a tangential connection to DeFi transactions. They emphasized that smart contracts and autonomous protocols do not function as traditional intermediaries, and that imposing intermediary-style regulations on them would be impractical and counterproductive.
The letter also stated that DeFi technology can offer different forms of investor protection and market resilience that traditional systems do not, and that thoughtfully designed on-chain markets can meet regulatory goals without defaulting to the traditional framework of registered brokers or exchanges.
This exchange reflects a broader debate in the crypto sector between traditional financial institutions seeking to apply familiar regulatory tools and DeFi proponents who argue for frameworks that recognize the unique nature of decentralized systems.
The SEC is gathering feedback on how to regulate tokenized assets and DeFi trading venues, balancing the need for investor safeguards with fostering technological innovation.
