Citadel Securities’ Regulatory Request
Citadel Securities has put forward a request to the Securities and Exchange Commission (SEC) seeking enhanced regulatory measures concerning decentralized finance (DeFi) and its interaction with tokenized stocks. This appeal has ignited considerable controversy within the cryptocurrency sector.
Concerns Over Exemptions
In correspondence to the SEC, Citadel asserted that developers engaged in DeFi, smart contract creators, and self-custodial wallet providers should not be granted broad exemptions when facilitating the trade of tokenized U.S. equities. The firm posited that such DeFi trading platforms potentially qualify as either an ‘exchange’ or a ‘broker-dealer’, thereby necessitating regulation under existing securities legislation, particularly if they are involved with tokenized stocks.
Citadel further cautioned that allowing wide-ranging exemptions would create dual regulatory regimes for the same asset, which stands in contrast to the “technology-neutral” philosophy promoted by the Exchange Act. Their letter was a response to the SEC’s outreach for public input regarding the regulation of tokenized stocks and has been met with significant opposition from the cryptocurrency community and proponents of blockchain innovation.
Responses from the Community
Jake Chervinsky, an attorney and member of the Blockchain Association’s board, voiced his doubts regarding Citadel’s position, implying that the firm’s objections are rooted in a reluctance to embrace innovations that could remove intermediaries from financial transactions.
Additionally, Hayden Adams, the founder of Uniswap, lambasted Citadel for what he sees as the traditional financial sector’s aversion to open-source, decentralized technology that simplifies access to liquidity.
Summer Mersinger, the CEO of the Blockchain Association, cautioned that categorizing software developers as financial intermediaries could hinder U.S. competitiveness and stifle technological advancement, arguing that regulatory focus should be directed at actual intermediaries instead.
Previous Engagements and Industry Support
Back in July, Citadel had presented its perspectives to the SEC’s Crypto Task Force, emphasizing that tokenized securities should thrive through authentic innovation and increased market efficiencies, rather than through exploitative regulatory loopholes.
The Securities Industry and Financial Markets Association (SIFMA), a trade group within the industry, supported Citadel’s views, advocating for equal investor protections for tokenized securities akin to traditional financial instruments. SIFMA pointed to recent volatility in crypto markets, such as the flash crash in October, to underline the significance of adhering to established securities regulations.
Additionally, the World Federation of Exchanges also urged the SEC to reconsider its intention to issue an ‘innovation exemption’ for cryptocurrency firms dealing with tokenized stocks, reinforcing the argument made by SIFMA in July.
