Citadel to SEC: Pump the Brakes on Tokenized Stocks—Wall Street Isn’t Ready

Citadel just threw regulatory sand in the gears of the tokenized securities revolution. The $63B hedge fund publicly urged the SEC to slow-walk approvals for blockchain-based stocks—while conveniently ignoring that their own dark pools would face existential competition.

Wall Street's hypocrisy at its finest: innovate, but not too fast.

The move comes as crypto exchanges increasingly bridge traditional finance with blockchain rails. Tokenized Tesla? Apple stock as an ERC-20? The old guard's sweating bullets over 24/7 trading and fractional ownership.

Citadel's filing claims "investor protection" concerns. Translation: they want to protect their 35% PFOF revenue before decentralized alternatives eat their lunch.

Meanwhile, DeFi protocols keep building—with or without permission. The SEC's decision here could determine whether the US leads the next financial infrastructure... or gets left holding paper certificates like it's 1985.

Citadel warns tokenization could undercut IPOs

A tokenized security, by definition, is a crypto-based version of a stock or asset. It represents the asset but doesn’t give direct ownership.

These tokens trade on blockchain networks instead of through traditional brokerages. They can also be broken into small, cheap pieces that anyone can buy, which is one of the reasons digital platforms like Coinbase and Robinhood have been promoting them. But Citadel’s letter argues that without proper rules, letting these products roll out could damage the already fragile IPO market.

The firm said giving private companies another route to raise money could pull even more deals out of the public space. They’re also worried that the shift WOULD send capital into new digital trading pools, locking out pensions, banks, and other large firms that can’t take on crypto exposure due to internal rules or fiduciary policies.

Citadel emphasized that real innovation means offering better tools, not skipping the process. “Tokenized securities must achieve success by delivering real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage,” the letter said.

Instead of a loose approach, they want the SEC to go through a proper rulemaking process with full transparency and public input. That hasn’t happened yet.

In response, the SEC declined to offer anything new, saying only that the chairman had already made his stance public. But that stance has changed direction from the previous administration.

Paul Atkins has made it known he’s not following the same path as former SEC Chair Gary Gensler, who was often accused of trying to control crypto through enforcement. Atkins is now talking about rolling back many of those rules, including one that allowed brokers to hold crypto on behalf of customers.

SEC considers exemption as stablecoin law gets signed

Last week, Atkins told the press that the SEC is looking into whether it should grant an “innovation exception,” a regulatory workaround that would let firms experiment with tokenized trading while skipping over certain restrictions.

He said SEC staff are “considering what other changes may be appropriate to incentivize tokenization within our regulatory framework,” including options that would “permit novel ways of trading” and allow more targeted exemptions to help build out the necessary infrastructure.

These comments came shortly after the U.S. House passed a major stablecoin bill and TRUMP signed it into law, which sets clear rules for companies that issue crypto tied to the dollar. Under the bill, firms would be required to hold dollar-for-dollar reserves in short-term government securities or similar low-risk products regulated at the state or federal level.

Meanwhile, Senator Elizabeth Warren said it doesn’t go far enough to protect consumers, despite the fact that it’s being hailed by others as a key milestone. Supporters believe it could bring cheaper and faster payments and add legitimacy to a crypto market expected to grow from $265 billion to over $3 trillion by 2030, based on industry forecasts.

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