Market maker Citadel Securities has urged the Securities and Exchange Commission to strengthen regulations on decentralized finance regarding tokenized stocks, provoking backlash from crypto users.
In a letter sent to the SEC on Tuesday, Citadel Securities argued that DeFi developers, smart contract programmers, and self-custody wallet providers should not receive “broad exemptive relief” for trading tokenized US equities.
It maintained that DeFi trading platforms likely meet the criteria of an “exchange” or “broker-dealer” and should be subject to securities regulations when offering tokenized stocks.
“Providing broad exemptive relief to enable the trading of a tokenized share via DeFi protocols would establish two distinct regulatory frameworks for the trading of the same security,” it asserted. “This result would contradict the ‘technology-neutral’ approach of the Exchange Act.”
Citadel’s letter, responding to the SEC’s request for feedback on regulating tokenized stocks, has received significant backlash from the crypto community and organizations promoting innovation in the blockchain sector.
Crypto users, Blockchain Association criticize
“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 every single person in crypto,” he added.
Uniswap founder Hayden Adams noted that it “makes sense the king of shady TradFi market makers doesn’t favor open source, peer-to-peer technology that can reduce the barriers to liquidity creation.”
Summer Mersinger, CEO of the crypto advocacy group Blockchain Association, stated that “regulating software developers as if they were financial intermediaries would harm US competitiveness, drive innovation abroad, and fail to enhance investor protection.”
“We urge the SEC to dismiss this overly broad and unfeasible approach and instead focus regulatory efforts on actual intermediaries who mediate between users and their assets,” she added.
Related: Tokenized money market funds rise to $9B; BIS warns of new risks
Citadel communicated to the SEC’s Crypto Task Force in July, asserting that tokenized securities “should succeed by providing real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage.”
SIFMA also calls for no DeFi exemption
The Securities Industry and Financial Markets Association (SIFMA), a trade group, released a similar statement on Wednesday, endorsing innovation but asserting that tokenized securities must adhere to the same essential TradFi investor protections.
It contended that recent disruptions in crypto markets, including the October flash crash, serve as “timely reminders of why established securities regulatory frameworks aimed at preserving market quality and safeguarding investors were originally created.”
This statement aligns with the trade group’s previous position in 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, urged the SEC to withdraw its plan to offer an “innovation exemption” to crypto firms intending to provide tokenized stocks.
Magazine: Animoca’s wager on altcoin potential, analyst predicts $100K Bitcoin: Hodler’s Digest
