On Dec. 2, Citadel Securities filed a 13-page letter with the SEC arguing that decentralized protocols facilitating tokenized US fairness buying and selling already meet statutory definitions of exchanges and broker-dealers, and regulators ought to deal with them accordingly.
Two days later, the SEC’s Investor Advisory Committee convened a panel on tokenized equities that made clear the query is now not whether or not shares can transfer on-chain, however whether or not they can accomplish that with out dismantling the permissionless structure that constructed DeFi.
The hole between these two positions now defines essentially the most consequential regulatory battle in crypto because the Howey check debates.
Citadel’s letter arrived for the time being when tokenized equities stopped being a thought experiment. The agency welcomes tokenization in precept however insists that realizing its advantages requires making use of “the important thing bedrock rules and investor protections that underpin the equity, effectivity, and resiliency of US fairness markets.”
In different phrases, the doc means that firms looking for to commerce tokenized Apple shares should adjust to Nasdaq guidelines, together with clear charges, consolidated tape reporting, market surveillance, truthful entry, and registration as an trade or broker-dealer.
The submitting warns that granting broad exemptive aid to DeFi platforms creates a shadow US fairness market wherein liquidity fragments, retail traders lose Change Act protections, and incumbents face regulatory arbitrage from unregistered opponents.
Inside hours, Uniswap founder Hayden Adams fired again on X, calling Citadel’s place an try and “deal with software program builders of decentralized protocols like centralized intermediaries.”
He invoked ConstitutionDAO, the 2021 crowdfunding effort that pooled $47 million in Ethereum to bid on a first-edition Structure at Sotheby’s, solely to lose to Griffin’s $43.2 million bid.
Moreover, Adams zeroed in on Citadel’s fair-access argument, calling it “precise nerve” from the dominant participant in retail order circulation. The trade captured crypto’s core narrative of permissionless code versus gatekeeper management and set the phrases for the Dec. 4 panel.
The statutory field citadel needs to shut
Citadel walks by the Change Act’s definitions to make its case. An trade is “any group, affiliation, or group of individuals” that “offers a market place or amenities for bringing collectively purchasers and sellers of securities.”
Rule 3b-16 clarifies {that a} system operates as an trade if it brings collectively orders utilizing established, non-discretionary strategies and if consumers and sellers conform to commerce.
Citadel argues many DeFi protocols meet all three prongs: there’s a “group of individuals” behind the protocol (founding designers, governance organizations, foundations), the protocol brings collectively consumers and sellers by way of non-discretionary code (automated market makers, on-chain order books), and customers conform to commerce after they submit transactions.
The identical logic extends to broker-dealer standing.
Citadel catalogs DeFi buying and selling apps, pockets suppliers, AMMs, liquidity suppliers, searchers, validators, protocol builders, and good contract builders.
For every, it lists transaction-based charges, governance-token rewards, or order-routing funds. The implication is that protocols that gather income tied to securities buying and selling, even by code, should register.
That framing aligns with the SEC’s 2024 enforcement motion towards Rari Capital, which charged a DeFi lending protocol and its founders with appearing as unregistered brokers. Citadel needs Rari to function the template.
The truthful entry requirement turned the flashpoint. Exchanges and ATSs should apply goal standards to all customers, eradicating discrimination in who can commerce and the charges they pay.
Citadel’s letter notes that there are “no equal necessities for unregistered DeFi buying and selling methods, enabling them to restrict entry arbitrarily or choice sure members over others.”
Adams selected that paragraph for his screenshot, arguing that Citadel can not credibly declare DeFi lacks truthful entry when the agency itself dominates retail order circulation from brokers like Robinhood.
Armani Ferrante, founding father of Backpack, added:
“‘DeFi’ shouldn’t be effectively outlined and so all of those conversations are an apples to oranges comparisons. There’s CEXs. Unregulated CEXs. DEXs. And unregulated CEXs pretending to be DEXs.”
What the Dec. 4 panel revealed
The SEC Investor Advisory Committee assembly framed tokenized equities inside a mainstream market construction moderately than treating them as a crypto novelty.
The panel, moderated by Andrew Park and John Gulliver, introduced collectively representatives from Coinbase, BlackRock, Robinhood, Nasdaq, Citadel Securities, and Galaxy Digital.
The agenda examined how issuance, buying and selling, clearing, settlement, and investor protections might work below present guidelines, with an specific concentrate on native issuance versus wrapper fashions, Regulation NMS applicability, interoperability throughout chains, and settlement and short-selling mechanics.
Commissioner Crenshaw delivered the skeptical case. She famous that many tokenized fairness merchandise marketed as wrapped publicity aren’t one-to-one replicas of the underlying shares, with possession rights and entitlements that may be unclear or disconnected from issuers.
Moreover, she questioned whether or not stress-free necessities just because a product sits on a blockchain invitations regulatory arbitrage.
That framing dovetails with the agenda’s emphasis on distinguishing true equity-like rights from lookalike tokens.
Chairman Paul Atkins countered by pitching tokenization as a modernization mission for US capital markets, arguing the Fee ought to allow markets to maneuver on-chain whereas retaining US management in international finance.
Exterior the assembly, incumbent resistance sharpened. The World Federation of Exchanges warned the SEC towards broad aid that may let crypto companies promote tokenized shares with out the normal regulatory perimeter.
SIFMA echoed a technology-neutral line, supporting innovation however arguing that tokenized securities ought to stay topic to core investor-protection and market-integrity guidelines and that any exemptions must be slender.
Nasdaq’s earlier proposal to deal with qualifying tokenized shares as fungible with conventional shares on the identical order ebook, with the identical CUSIP and the identical materials rights, aligns with the path Atkins seems to favor.
Competing theories of management
Citadel’s principle holds {that a} safety is a safety, whatever the ledger.
When you deliver collectively consumers and sellers of Apple shares, even tokenized, utilizing automated code and gathering charges, you carry out trade or broker-dealer features and will meet these obligations.
This view treats code as infrastructure, not ideology. It assumes that investor safety flows from middleman accountability moderately than from technical design.
Adams’s principle treats open-source code as distinct from intermediaries. A wise contract doesn’t have clients, doesn’t take custody, doesn’t train discretion, and doesn’t match the Change Act’s mid-Twentieth-century mannequin.
Treating protocol builders as brokers conflates writing software program with working a enterprise and fingers incumbents veto energy over which applied sciences can exist.
This view assumes safety flows from transparency and permissionlessness: anybody can audit the code, fork it, or construct competing infrastructure.
Commissioner Hester Peirce, who leads the SEC’s Crypto Job Power, has staked out a place nearer to Adams.
In a February assertion, she acknowledged that extraordinary DeFi front-end builders and open-source builders mustn’t routinely be held to trade and dealer requirements only for publishing code or operating a non-custodial UI.
But Citadel’s letter explicitly lists “DeFi protocol builders” and “good contract builders” as potential intermediaries who design, deploy, and keep infrastructure whereas gathering charges for executing trades, exercising governance rights, and prioritizing community visitors.
If deploying a sensible contract that lets customers commerce tokenized shares makes somebody a broker-dealer topic to net-capital guidelines, custody necessities, and know-your-customer obligations, then open-source protocol improvement turns into legally untenable.
What occurs subsequent
The sign for 2026 is that the SEC will check whether or not tokenized equities can exist inside the identical investor-rights and market-integrity structure that governs in the present day’s equities.
Atkins has floated an innovation exemption, a supervised sandbox that may let some tokenized fairness platforms function with out full registration whereas the company research the dangers.
The Dec. 4 panel framed that exemption as a compliance stress check, not a blanket waiver.
The large unresolved battle is whether or not innovation pathways will likely be tightly tethered to Regulation NMS and present middleman obligations, or whether or not the SEC will entertain broader experimental carve-outs that TradFi teams concern might fragment liquidity and weaken protections.
If the SEC sides with Citadel, DeFi protocols dealing with tokenized equities face compliance burdens designed for Constancy and Morgan Stanley, driving exercise offshore or into gray-market wrappers.
If it sides with Adams, conventional contributors will argue that the company created regulatory arbitrage, and litigation from SIFMA and the World Federation of Exchanges will comply with.
The result decides whether or not tokenized US equities can commerce on public blockchains below the permissionless ethos that constructed DeFi, or whether or not opening the inventory market to on-chain settlement means closing DeFi’s open structure in America.
Griffin positioned his wager. The SEC now chooses who will get the structure.
