Market maker Citadel Securities has urged the Securities and Exchange Commission to strengthen regulations on decentralized finance regarding tokenized stocks, sparking criticism from the crypto community.
In a letter to the SEC on Tuesday, Citadel Securities stated that DeFi developers, smart-contract programmers, and self-custody wallet operators should not receive “broad exemptive relief” for trading tokenized US equities.
The firm argued that DeFi trading venues likely fit the definitions of “exchange” or “broker-dealer” and should be regulated under securities laws if they deal in tokenized stocks.
“Allowing broad exemptive relief for the trading of tokenized shares via DeFi protocols would create dual regulatory frameworks for the same security,” it contended. “This scenario would contradict the “technology-neutral” approach of the Exchange Act.”
Citadel’s letter, responding to the SEC’s request for input on the regulation of tokenized stocks, has faced significant pushback from the crypto community and organizations promoting blockchain innovation.
Criticism from Crypto Users and the Blockchain Association
“Whoever thought Citadel would oppose innovation that eliminates predatory, rent-seeking intermediaries from the financial system?” questioned lawyer and Blockchain Association board member Jake Chervinsky on Thursday.
“Oh, right, literally everyone in crypto,” he added.
Uniswap founder Hayden Adams stated that it “makes sense the king of dubious TradFi market makers dislikes open-source, peer-to-peer technology that can reduce liquidity creation barriers.”
Summer Mersinger, CEO of the Blockchain Association, remarked that “regulating software developers as if they were financial intermediaries would compromise US competitiveness, drive innovation abroad, and fail to enhance investor protection.”
“We urge the SEC to reject this overly broad and impractical approach and instead target regulatory efforts at actual intermediaries who mediate between users and their assets,” she added.
Related: Tokenized money market funds surge to $9B; BIS warns of new risks
In July, Citadel addressed the SEC’s Crypto Task Force, claiming that tokenized securities “should thrive by delivering genuine innovation and efficiency to market participants, not through self-serving regulatory arbitrage.”
SIFMA Calls for No DeFi Exemptions
The Securities Industry and Financial Markets Association (SIFMA), an industry trade organization, released a similar statement on Wednesday, advocating for innovation while asserting that tokenized securities must adhere to the same essential TradFi investor protections.
SIFMA noted that recent crypto market disruptions, including the October flash crash, serve as “timely reminders of why long-established securities regulatory frameworks were originally created to preserve market integrity and protect investors.”
The statement reflects the trade group’s position from July, rejecting any SEC exemptive relief for blockchain and DeFi platforms issuing tokenized assets.
In November, the World Federation of Exchanges, representing major stock exchanges, encouraged the SEC to abandon its intention of providing an “innovation exemption” to crypto companies wanting to offer tokenized stocks.
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