The crypto groups said they aimed to correct several factual mischaracterizations and misleading statements in Citadel's recent correspondence.
Crypto News
Decentralized finance advocates are pushing back against Citadel Securities' demand for stricter regulatory oversight of DeFi intermediaries handling tokenized securities. The DeFi Education Fund, Andreessen Horowitz, The Digital Chamber, Uniswap Foundation, and others sent a letter to the Securities and Exchange Commission on Friday calling Citadel's position flawed.
The crypto groups said they aimed to correct several factual mischaracterizations and misleading statements in Citadel's recent correspondence. Citadel Securities had sent a letter to the SEC last week arguing the agency should fully identify intermediaries involved in trades of tokenized U.S. equities, including decentralized trading protocols that often resemble exchanges or broker-dealers under existing classifications.
According to the crypto advocates, Citadel's letter rests on a flawed analysis of securities laws that attempts to extend SEC registration requirements to essentially any entity with even the most tangential connection to a DeFi transaction. The firms argued that autonomous software and technological infrastructure cannot be considered intermediaries under the SEC's statutory definitions primarily because traders remain in control over their assets.
Stephen John Berger, Citadel Global Head of Government and Regulatory Policy, wrote that concluding no participants meet the definitions of broker or dealer would suggest the technology used matters more than the services provided. This would potentially call into question the regulatory treatment of firms that have long registered with the Commission, he stated.
The crypto industry has long argued that DeFi works differently from traditional finance in part because there are no direct intermediaries, making it difficult, if not impossible, to comply with the same rules. Jonah Platt, managing director and U.S. head of government and regulatory policy at Citadel Securities, said at an SEC Advisory Committee meeting earlier this month that tokenization of U.S. equities can benefit investors, but granting broad exemptions for DeFi could have negative consequences.
A Citadel Securities spokesperson said Friday the firm strongly supports tokenization and other innovations that can reinforce America's leadership in digital finance, but this does not require sacrificing rigorous investor protections that have made U.S. equity markets the global gold standard. The statement came in response to the DeFi coalition's letter challenging the firm's regulatory approach.
DeFi Education Fund spokeswoman Jennifer Rosenthal suggested Citadel is protecting its business interests. It is convenient for Citadel to question the existence of a technology that threatens its business and significant market share, she stated.
The epistolary exchange comes as the SEC continues to signal that it views innovation as beneficial to capital markets. Chair Paul Atkins has said the agency must create pathways for market participants to comply with existing regulations, while White House crypto adviser Patrick Witt posted on social media that his office supports the need to protect software developers and DeFi.
The SEC sent a no-action letter to the Deposit Trust Company earlier Friday, clearing it to offer a tokenization service for custodied real-world assets. Under the letter, DTC may tokenize a defined set of assets, including Russell 1000 constituents, ETFs tracking major U.S. equity indices, and U.S. Treasury bills, bonds, and notes.
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