Citadel Urges SEC to Deny DeFi Exemptions for Tokenized Stocks

Citadel Securities, a leading market-making firm, urged the U.S. Securities and Exchange Commission on December 2 to deny broad regulatory exemptions for decentralized finance platforms handling tokenized U.S. equities, arguing that such platforms already function as exchanges and broker-dealers under existing securities laws.

In a 13-page letter to the SEC, Citadel Securities contended that DeFi protocols, including automated market makers, liquidity providers, and smart contract developers, meet the statutory definitions of exchanges by bringing together buyers and sellers of securities through nondiscretionary code. The firm emphasized that these platforms often collect transaction-based fees or governance token rewards tied to trading activity, which it said qualifies them as broker-dealers requiring registration. Citadel warned that exemptions would fragment liquidity, expose retail investors to risks without standard protections like transparent fees and market surveillance, and create regulatory arbitrage favoring unregistered competitors over traditional venues.

The letter arrived amid growing interest in tokenization, where real-world assets like stocks are represented...