Crypto Advocates: Citadel’s SEC Plan Would Mislabel Software as Brokers
What Sparked the Clash Between Citadel and the Crypto Industry?
Citadel Securities has drawn sharp criticism from crypto industry groups after urging the Securities and Exchange Commission to identify and regulate intermediaries involved in the trading of tokenized U.S. equities. The firm argued that decentralized protocols often operate like exchanges or broker-dealers and should fall under existing SEC classifications.
In response, a coalition including the DeFi Education Fund, Andreessen Horowitz, The Digital Chamber and the Uniswap Foundation sent a letter to the SEC stating they intended to “correct several factual mischaracterizations and misleading statements.” The groups said Citadel’s argument is built on “a flawed analysis of the securities laws” and attempts to apply registration requirements to “any entity with even the most tangential connection to a DeFi transaction.”
The exchange of letters comes as tokenization gains momentum across traditional markets. While regulators have acknowledged potential benefits, the question of how DeFi fits within existing statutes has become a core tension point.
Investor Takeaway
The dispute shows how tokenization is forcing legacy and crypto-native players into the same regulatory arena. The outcome will shape how onchain markets operate inside U.S. securities law.
What Is Citadel Arguing?
In its earlier letter, Citadel said decentralized protocols cannot be treated differently simply because they rely on software. Stephen John Berger, Citadel’s global head of government and regulatory policy, wrote that ignoring broker or dealer definitions “would again suggest that the technology used matters more than the services provided, and would potentially call into question the regulatory treatment of firms who have long registered with the Commission.”
Citadel’s stance is that tokenization of U.S. equities could benefit investors but must occur inside the same framework that governs other trading venues. Jonah Platt, a managing director at the firm, told an SEC advisory panel that granting broad exemptions to DeFi could create risks for investors.
A Citadel spokesperson reiterated support for blockchain applications but pointed to investor protections as a non-negotiable part of U.S. markets: “Citadel Securities strongly supports tokenization and other innovations that can reinforce America’s leadership in digital finance, but this does not require sacrificing the rigorous investor protections that have made U.S. equity markets the global gold standard.”
How Are Crypto Groups Responding?
DeFi advocates say Citadel’s view misrepresents how decentralized systems work. Their letter argues that “autonomous software” and “technological infrastructure” cannot be classified as intermediaries because they do not control user assets. They warn that applying the definitions too broadly could “inadvertently scope in software developers who do not have custody or control over users’ assets.”
Industry groups also say Citadel’s model assumes an intermediary structure that does not exist in DeFi. Crypto advocates argue that users interact with smart contracts directly and that applying broker-dealer rules designed for traditional custodial systems would be impossible. The earlier wave of criticism called Citadel’s proposal “unworkable.”
The debate reflects a deeper divide over whether DeFi activity should be mapped onto existing categories or treated as a separate model requiring new guidance. For now, both sides are leaning on statutory definitions written long before autonomous trading software existed.
Investor Takeaway
The SEC faces pressure to distinguish between intermediaries and software. How it draws that line will affect developers, liquidity providers and tokenized asset platforms across the U.S.
How Does This Tie Into the SEC’s Broader Tokenization Agenda?
The timing of the letters coincides with the SEC sending a no-action letter to the Depository Trust Company, allowing it to offer a tokenization service for custodied assets. Under the approval, DTC may tokenize a defined set of instruments, including Russell 1000 equities, ETFs tied to major U.S. indices and U.S. Treasury bills, bonds and notes.
The move shows that tokenization is already entering the traditional plumbing of U.S. markets, even as debates around DeFi continue. The SEC, led by Chair Paul Atkins, has said it wants to support innovation while ensuring market participants can follow existing rules. That balance has become harder to maintain as tokenization expands beyond pilots and into regulated infrastructures.
Crypto groups argue that DeFi operates through user-controlled transactions and does not rely on the same layers of intermediaries embedded in traditional settlement. Citadel, on the other hand, warns that creating carve-outs for DeFi could weaken expectations placed on entities that already comply with SEC rules.
As tokenized assets enter mainstream financial systems, the fight over how to classify DeFi activity is likely to intensify. The SEC must now decide how much of the traditional framework applies and where new interpretations are required.