Citadel Faces Blowback After Urging the SEC to Treat DeFi Protocols as Full Market Intermediaries

• Citadel pushes SEC to apply full market rules to DeFi tokenized-equity trading.
• Hayden Adams says Citadel’s stance could wrongly regulate DeFi developers as intermediaries.
• Industry groups back equal safeguards for tokenized securities to protect market integrity.

Citadel Securities is facing criticism after recommending that the U.S. Securities and Exchange Commission impose tighter rules on decentralized finance systems that trade tokenized securities.

 The firm urged the Securities and Exchange Commission to apply long-standing market rules to DeFi systems that handle tokenized U.S. equities, arguing that technology should not alter core obligations placed on exchanges and broker-dealers. 

Citadel Warns Against Dual Standards for Tokenized Markets

The firm’s letter, sent to the agency on Tuesday, requests that regulators identify all intermediaries participating in tokenized equity transactions, including decentralized protocols. 

Citadel argued that many DeFi platforms employ automated mechanisms that match buyers and sellers in a manner that meets statutory definitions of an exchange. It stated that trading apps, wallet providers, and automated market makers often receive transaction-linked fees that can place them under broker-dealer rules.

According to the letter, exemptions would weaken core protections, including fair access, market surveillance, anti-front-running safeguards, and post-trade reporting. Citadel warned that broad exemptions for DeFi systems could create parallel legal structures for trading the same instruments.

Adams Claims Citadel Seeks to Expand Oversight to DeFi Developers

Uniswap founder Hayden Adams responded to the letter by claiming that Citadel founder Ken Griffin aims to influence regulatory policy in ways that could place DeFi developers on par with centralized financial intermediaries. In public remarks posted on X (formerly Twitter), Adams stated that the firm has sought stricter oversight of decentralized systems for years, including during disputes related to ConstitutionDAO.

Adams argued that the current debate risks placing software developers under regulatory expectations designed for institutions that custody assets or execute trades on behalf of clients. 

Moreover, CEO Summer Mersinger warned that treating software creators as if they were financial intermediaries would weaken the United States’ competitive edge, push development overseas, and fail to improve investor safeguards.

Summer argued the SEC should discard such a sweeping framework and concentrate its oversight on the real intermediaries that handle users’ assets.

Industry Groups Demand Equal Standards for Tokenized Securities

The Securities Industry and Financial Markets Association (SIFMA) released a press release on Wednesday, backing new technology but stressing that tokenized securities must fall under the core investor protections used in traditional markets.

The group cited recent issues in digital-asset trading, including the sharp price swing seen in October, as a clear reminder of why long-established securities rules were created to safeguard investors and promote market integrity.