Writing to the U.S. Securities and Exchange Commission (SEC) earlier this week as the agency considers how to apply securities laws to cryptocurrency platforms, the company argued that some systems dealing in tokenized U.S. equities could seem similar to regulated market infrastructure and could be judged as such.
“Many trading protocols that identify as ‘DeFi’ (including many who have self-identified as decentralized exchanges appear to bring together buyers and sellers for securities when facilitating the trading of tokenized U.S. equities, and thus meet the definition of an ‘exchange,’” the letter reads.
“To conclude otherwise would suggest that the technology used matters more than the trading functionality supported, and would severely undermine the regulatory framework designed to protect investors and safeguard market integrity and resiliency.”
The company’s comments were flagged in a report by CoinDesk, which notes that it provoked outrage among the crypto community, saying the company was echoing positions taken by former SEC Chair Gary Gensler, known for his tough stance on the industry.
Uniswap creator Hayden Adams criticized Citadel’s letter, saying it basically moved to treat open-source developers as though they were centralized intermediaries.
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He also argued against Citadel’s claim that DeFi cannot guarantee “fair access,” arguing that permissionless protocols open the door to more participation, not less.
“Citadel just declared war on project crypto, taking up arguments made by Gensler in his failed attempt to regulate DeFi and attacking the points made by Commissioner [Hester] Pierce in her dissent,” a crypto policy commentator who goes by “The BlockProf” wrote. “The opposition letters will be extensive … stay tuned.”
SEC Chair Paul Atkins has said that the commission is working on an exemption from securities laws that would permit crypto companies to try new business models. As it stands now, companies that wish to sell tokenized stocks in the U.S., but aren’t registered as broker-dealers, must obtain a no-action letter or exemption from the SEC.
As covered here last week, the World Federation of Exchanges (WFE), whose members include Nasdaq, has said the SEC’s plan could hurt investors.
“The SEC should avoid granting exemptions to firms attempting to bypass regulatory principles that have safeguarded markets for decades,” WFE CEO Nandini Sukumar told Reuters.
