Citadel Urges SEC to Treat Tokenized Stocks as Securities, Sparking DeFi Pushback

Citadel Securities urged the U.S. Securities and Exchange Commission to apply existing securities laws to tokenized stocks traded on DeFi platforms, arguing that tokens representing company ownership function as securities regardless of blockchain technology. The firm warned that exempting tokenized stocks would create investor-protection gaps — including weak market surveillance, no custody safeguards, and potential conflicts of interest — and could produce parallel, unregulated markets that threaten market integrity. Citadel highlighted that many DeFi systems have identifiable intermediaries (developer teams, governance token holders) who extract fees and influence trading, and said smart contracts that execute trades should face disclosure, surveillance and custody rules similar to traditional markets. Major crypto stakeholders — including the DeFi Education Fund, Uniswap Foundation, a16z and other industry groups — pushed back, saying Citadel mischaracterizes genuine DeFi and that decentralised protocols differ fundamentally from exchanges and broker-dealers. They argued that applying legacy securities rules could stifle innovation and undermine permissionless access, and urged the SEC to design a tailored regulatory framework that balances investor protection with decentralisation. The debate increases regulatory uncertainty for tokenized assets while the SEC solicits feedback; outcomes could either accelerate institutional adoption and liquidity if integrated into existing law, or restrict DeFi growth if rules are incompatible with decentralised models.