Citadel Securities has urged the U.S. Securities and Exchange Commission (SEC) to deny regulatory exemptions for decentralized finance protocols that facilitate trading of tokenized U.S. equities.
In a formal letter to the agency, the firm argued that many DeFi platforms operate like traditional exchanges and broker-dealers, and therefore must be held to the same regulatory standards.
The stance quickly triggered backlash across the crypto industry, escalating long-running tensions between traditional market makers and decentralized trading platforms.
Citadel Argues DeFi Platforms Function Like Regulated Market Operators
In its letter, Citadel Securities said that DeFi protocols using smart contracts to match buyers and sellers of tokenized stocks fit squarely within the legal definitions of an “exchange” or a “broker-dealer.” The firm warned that allowing them to bypass registration rules would weaken investor protections, distort market integrity, and create a regulatory imbalance between tokenized and legacy equities markets.
Citadel emphasized that the Exchange Act is meant to be technology-neutral, meaning regulatory obligations should not depend on whether matching engines are coded in software or operated by centralized entities. The firm also urged the SEC to conduct a formal rulemaking process, rather than issuing broad exemptions, to address tokenization initiatives in a structured and transparent way.
Crypto Industry Accuses Citadel of Protecting Its Territory
The response from the crypto community was swift and critical. Industry figures accused Citadel of trying to preserve its dominant role in traditional equities markets by slowing down decentralized competition.
Uniswap founder Hayden Adams framed the letter as an attempt to suppress innovation rather than protect investors. The Blockchain Association echoed that view, arguing that regulating open-source software developers as if they were financial intermediaries would harm U.S. competitiveness and push innovation overseas.
The group also reiterated its long-held position that “code is speech”, asserting that DeFi developers should not face the same obligations as custodial or centralized financial institutions.
Citadel’s Split Strategy Highlights Broader Industry Tension
One detail that drew attention was Citadel Securities’ simultaneous interest in more compliant blockchain infrastructure. The firm recently co-led a $500 million investment in Ripple, signaling support for regulated digital-asset initiatives even as it opposes decentralized trading platforms.
This dual-track approach underscores a growing divide in the market: traditional firms are willing to fund blockchain projects that fit within existing regulatory structures, while resisting the emergence of decentralized systems that bypass intermediaries entirely.
A Pivotal Moment for Tokenized Markets
The clash between Citadel and the crypto industry arrives as the SEC evaluates how tokenized equities should be regulated and whether new forms of market infrastructure require updated frameworks. With both sides pressing for fundamentally different interpretations of the law, the debate over DeFi’s role in U.S. securities markets is likely to intensify as tokenization efforts continue to expand.
