Citadel Securities’ Tokenized Equity Push Sparks SEC DeFi Rules Backlash

Wall Street's quiet invasion of DeFi just hit a regulatory wall.

Citadel Securities—the trading behemoth that moves more retail stock flow than any exchange—is pushing to tokenize traditional equities. Their vision? Slice blue-chip stocks into blockchain-based tokens that trade 24/7 on decentralized platforms. No closing bell, no middlemen, just code and capital.

The SEC isn't buying the pitch.

Regulators fired a warning shot across the bow, arguing that tokenized securities operating in DeFi ecosystems don't get a free pass from century-old investor protections. The core conflict? DeFi's foundational ethos—permissionless, anonymous, automated—clashes directly with securities laws built on gates, names, and human intermediaries.

Citadel's play isn't charity. It's a calculated bid to capture the next generation of liquidity. By bridging traditional assets to blockchain rails, they position themselves as the plumbing for a hybrid financial system. One cynical observer might note it's the same old Wall Street playbook: first dismiss the innovation, then lobby to control it, and finally monetize the infrastructure.

The backlash is brewing from both sides. Crypto natives smell a Trojan horse—a centralized giant colonizing decentralized territory. Traditional finance skeptics see a dangerous blurring of lines, where stock ownership dissolves into anonymous digital wallets.

This isn't just a policy skirmish. It's a battle for the architecture of capital markets. Will the future be built on Wall Street's legacy systems or crypto's open networks? The answer might land somewhere in the messy, regulated middle.

One thing's certain: when a firm that profits from market structure proposes a new one, it's not a revolution—it's a business plan. The SEC seems intent on making sure that plan includes a rulebook.

Risk of Two Rulebooks for One Security

Citadel cautioned that broad exemptions might divide oversight of the same security. It noted that a tokenized share traded through DeFi might be subject to different rules than the same share traded elsewhere. The company said that result was at odds with a “technology-neutral” policy. It said the Exchange Act should not promote one technology over another.

The firm contended that many DeFi protocols fall under the definition of an exchange. It cited matching buyers and sellers through non-discretionary means. Algorithms were among the examples of those methods that Citadel cited. It said these systems are able to organize trading interest in an organized way.

Citadel also noted that a number of DeFi participants can fall under the definition of broker-dealers. It included trading apps, wallet providers and automated market makers. The letter addressed the use of transaction based compensation. It said that obtaining such payments may be an expression of broker-dealer behavior.

SEC Rulemaking Urged Over Broad DeFi Relief

The company argued that broad exemptions would weaken competition protections in the marketplace. It included fair access, post-trade transparency and market surveillance. It also pointed to anti-front-running rules and other investor protections. These moves support integrity in U.S. equity markets, Citadel said.

Citadel recommended the platform employ notice-and-comment rulemaking. It framed that path as more powerful than a broad exemption. The firm tied that process to the concept of applying “bedrock principles” to tokenization. It contended that investor protections must continue to be paramount as markets evolve.

The letter led to backlash from crypto leaders. To Maker a Change Uniswap founder Hayden Adams criticized on X — his post accused Citadel CEO Ken Griffin of “coming for DeFi.” Adams said he found Citadel’s claim around “fair access” challenging to believe.

In general terms, Adams also made clear his disdain for traditional market makers. He compared them with open-source, peer-to-peer tools. DeFi can reduce barriers to creating liquidity, he added. His post fueled the backlash to Citadel’s request to the regulator.

Summer Mersinger, CEO of the Blockchain Association advised the SEC to pass in what she called an “overbroad and unworkable” approach. Such an interpretation by Citadel is not rooted in the Exchange Act, she said. She also invoked decades of Commission practice and judicial precedent.

First Ken Griffin screwed over Constitution DAO

Now he's coming for DeFi, asking the SEC to treat software developers of decentralized protocols like centralized intermediaries

Bet Citadel has been lobbying behind closed doors on this for years

Okay thats all pretty bad, but… pic.twitter.com/ExoNhbhadu

Mersinger differentiated between software builders and financial intermediaries. She argued that overseeing developers as intermediaries WOULD undercut U.S. competitiveness. She warned that the policy would send innovation abroad. It would not, she added, further investor protection.

The matter is now before the SEC. The agency got Citadel’s suggestions in the Tuesday letter. The public reactions suggest just how contested tokenized equities are. What happens next will likely be determined by the calculus of whether the SEC values exemptions over formal rulemaking.