Citadel Securities and DeFi Waging War of Words Through SEC Correspondence

AI Summary3 min read

TL;DR

Citadel Securities and DeFi groups are clashing via SEC letters over whether DeFi protocols need stricter regulation. DeFi advocates argue Citadel's push for traditional registration is baseless and protects its business interests, while Citadel emphasizes investor protection.

Key Takeaways

•Citadel Securities urged the SEC to impose tighter regulations on DeFi protocols handling tokenized securities, claiming they may operate as exchanges needing registration.
•DeFi groups, including the DeFi Education Fund and Andreessen Horowitz, countered that Citadel's arguments are 'baseless' and that onchain markets can meet regulatory goals without traditional registration.
•The dispute highlights tensions between traditional finance firms protecting market share and DeFi advocates seeking regulatory flexibility for innovation.
•The SEC under new management is exploring ways to give the crypto industry more policy leeway, with White House support for protecting software developers and DeFi.
•Citadel maintains that innovation in tokenization should not compromise investor protections that make U.S. equity markets a global standard.

What to know:

A feud conducted over U.S. Securities and Exchange Commission (SEC) correspondence has developed between Citadel Securities and the DeFi sector, arguing over whether DeFi protocols should be more regulated.
The DeFi space is calling out the investment firm for its approach to the securities regulator.

A feud conducted over U.S. Securities and Exchange Commission (SEC) correspondence has developed between Citadel Securities and the DeFi sector, arguing over whether DeFi protocols should be more regulated.
The DeFi space is calling out the investment firm for its approach to the securities regulator.

After a 13-page letter from investment powerhouse Citadel Securities advised the U.S. Securities and Exchange Commission that decentralized finance (DeFi) protocols handling tokenized securities demand a closer regulatory grip, the industry answered back with its own correspondence on Friday, calling the arguments "baseless."

"While we share Citadel’s aims with respect to investor protections, orderly markets, and the integrity of the national market system, we disagree that achieving these goals always necessitates registration as traditional SEC intermediaries and cannot, in certain circumstances, be met through thoughtfully designed onchain markets," according to the new letter to the SEC, signed by the DeFi Education Fund, venture capital firm Andreessen Horowitz (a16z), the DigitalChamber, Orca Creative, lawyer J.W. Verret and the Uniswap Foundation.

Citadel Securities contended that DeFi protocols may operate as exchanges or brokerages in need of registration and regulation. However, this year's new management of the SEC under President Donald Trump has been seeking ways to give the crypto industry more policy leeway. And White House crypto adviser Patrick Witt just posted on social media site X that his office supports the "need to protect software developers and DeFi."

"As detailed in our comment letters, 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,” a spokesperson said in an emailed comment.

Citadel's letter included "several factual mischaracterizations and misleading statements," according to the DeFi coalition's response. And a DeFi Education Fund spokeswoman, Jennifer Rosenthal, suggested the firm 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," Rosenthal said.

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