A coalition of cryptocurrency organizations has opposed Citadel Securities’ request for the Securities and Exchange Commission to tighten regulations on decentralized finance regarding tokenized stocks.
Andreessen Horowitz, the Uniswap Foundation, and crypto advocacy groups such as the DeFi Education Fund and The Digital Chamber, among others, stated they aimed “to correct several factual mischaracterizations and misleading statements” in a letter sent to the SEC on Friday.
This response was in relation to a letter from Citadel earlier this month, which urged the SEC to refrain from granting DeFi platforms “broad exemptive relief” for trading tokenized US equities, claiming these could likely be classified as an “exchange” or “broker-dealer” under securities laws.
“Citadel’s letter is based on a misguided interpretation of the securities laws that seeks to impose SEC registration requirements on any entity with even a minimal link to a DeFi transaction,” the coalition stated.
While the group aligned with Citadel’s objectives of investor protection and market integrity, they contended “that achieving these goals does not always require registration as traditional SEC intermediaries and can, in certain instances, be accomplished through well-designed onchain markets.”
Concerns over Citadel’s request
The coalition argued that applying securities laws to decentralized platforms “would be impractical given their functions” and might encompass a wide range of onchain activities that are not generally seen as providing exchange services.
The letter also challenged Citadel’s portrayal of autonomous software as an intermediary, asserting it cannot be a “‘middleman’ in a financial transaction because it lacks the capacity for independent discretion or judgment.”
“DeFi technology represents a new innovation aimed at mitigating market risks and enhancing resilience differently than traditional finance, providing investor protections that conventional systems cannot,” the coalition emphasized.
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In its correspondence, Citadel contended that SEC approval of tokenized shares on DeFi “would establish two distinct regulatory frameworks for the trading of the same security” and would undermine the “technology-neutral” principle of the Exchange Act.
Citadel claimed that exempting DeFi platforms from securities laws could endanger investors, as these platforms would lack safeguards such as venue transparency, market oversight, and volatility controls, among others.
The initial letter sparked significant backlash, with Blockchain Association CEO Summer Mersinger labeling Citadel’s position as an “overbroad and unworkable approach.”
These letters surfaced as the SEC seeks input on regulating tokenized stocks, and agency chair Paul Atkins has remarked that the U.S. financial system may adopt tokenization in a “couple of years.”
Tokenization has gained tremendous traction this year, but NYDIG cautioned on Friday that onchain assets won’t immediately provide considerable advantages to the crypto market until regulations permit a more integrated approach with DeFi.
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