Citadel Calls for SEC Review of DeFi Protocols, Faces Crypto Industry Backlash

Citadel Securities Challenges DeFi with SEC Review Request

Citadel Securities has called on the U.S. Securities and Exchange Commission (SEC) to scrutinize decentralized finance (DeFi) systems, particularly those handling tokenized U.S. equities. Citadel argues that these systems may resemble regulated market infrastructures and should be evaluated under federal securities laws.

Crypto Community Reacts Strongly

The crypto sector reacted with significant disapproval following Citadel's December 2nd letter, made public as part of a consultation on crypto trading platforms. Historically skeptical under former Chair Gary Gensler, the SEC's stance has softened since President Donald Trump's return to office. However, Citadel's call for cautious regulation echoes past concerns, especially about DeFi.

In its submission, Citadel highlighted that many automated protocols function similarly to traditional exchanges by connecting buyers and sellers through smart contracts. Citadel contends these systems may meet criteria for exchanges or broker-dealers, particularly when facilitating securities-linked transactions.

Citadel also emphasized that any regulatory adjustments should follow a thorough examination of investor protection, warning against inconsistent oversight between tokenized and traditional markets, which could create transparency and compliance issues.

Industry Leaders Voice Opposition

The crypto community took to social media to express dissent. Uniswap creator Hayden Adams criticized the proposal, asserting that it unfairly targets open-source developers as centralized entities. Adams argued that DeFi protocols enhance, rather than limit, access.

Crypto policy expert "BlockProf" commented that Citadel's position echoes failed attempts by Gensler to regulate DeFi and attacks the dissenting views of Commissioner Hester Pierce. The crypto community is poised to respond extensively.