Citadel’s Crypto Crackdown Backfires: Wall Street Giant Faces DeFi Rebellion Over Regulation Push

Citadel just learned a hard lesson: try to cage decentralized finance, and the crypto community bites back.

The Push That Sparked the Panic

Ken Griffin's financial empire, a titan of traditional markets, recently turned its regulatory gaze toward the DeFi space. The move wasn't subtle—it was a classic Wall Street playbook maneuver, aiming to shape rules that could, conveniently, favor established institutional gatekeepers. The goal seemed clear: bring the wild frontier of permissionless protocols under a familiar, controllable framework.

Why the Backlash Was Inevitable

The reaction from crypto natives was swift and fierce. Online forums and developer circles lit up with accusations of hypocrisy and regulatory capture. Critics argue Citadel's push isn't about consumer protection—it's about protectionism. It's the old guard trying to install toll booths on a highway they didn't build, a move viewed as antithetical to the core ethos of self-custody and open access. After all, nothing says 'financial innovation' like a hedge fund lobbying for thicker rulebooks.

The High-Stakes Standoff

This clash represents more than a policy debate; it's a battle for the soul of the future financial system. On one side, traditional finance seeks order and risk mitigation through centralized oversight. On the other, DeFi proponents champion code-as-law and decentralized governance. Citadel's misstep was underestimating the cohesion and ideological fervor of a community built to resist exactly this kind of centralized pressure.

The fallout is a stark reminder: in crypto, the market doesn't just vote with its wallet—it codes, it governs, and it fights back. Citadel's play for control may have just cemented DeFi's resolve to remain untamed.

TLDR

• Citadel Securities asked the SEC to regulate DeFi platforms offering tokenized stocks under securities laws as exchanges or broker-dealers
• A crypto coalition including Andreessen Horowitz and the DeFi Education Fund called Citadel’s arguments “baseless” and “misleading” in a response letter
• The crypto groups argue that autonomous software cannot be a middleman and that DeFi platforms work differently than traditional exchanges
• Citadel claims exempting DeFi from securities laws would create two regulatory systems for the same assets and harm investor protections
• The debate comes as SEC chair Paul Atkins says the US financial system could embrace tokenization within a couple of years

Citadel Securities and major crypto organizations are fighting over how the Securities and Exchange Commission should regulate decentralized finance platforms that handle tokenized stocks. The dispute centers on whether DeFi protocols should face the same rules as traditional exchanges.

1/ Citadel got DeFi wrong.

Today, DEF, @a16z, @DigitalChamber, @orca_so, @theblockprof, & @UniswapFND wrote to @SECGov in response to @citsecurities' letter misrepresenting how DeFi technology works.

Why this group? Citadel blatantly miscited us, and we feel obligated to… pic.twitter.com/sQ12HnX5Af

— DeFi Education Fund (@fund_defi) December 12, 2025

Citadel Securities sent a 13-page letter to the SEC earlier this month. The investment firm argued that DeFi platforms offering tokenized US equities should register as exchanges or broker-dealers under securities laws.

The company said giving DeFi platforms “broad exemptive relief” WOULD create problems. Citadel warned this approach would establish two separate regulatory systems for trading the same security.

A coalition of crypto groups responded on Friday with their own letter to the SEC. The DeFi Education Fund, Andreessen Horowitz, the Uniswap Foundation, The Digital Chamber, Orca Creative, and lawyer J.W. Verret signed the response.

The crypto coalition called Citadel’s arguments “baseless” and accused the firm of making “several factual mischaracterizations and misleading statements.” They said they share Citadel’s goals of protecting investors and maintaining market integrity.

However, the groups disagreed that DeFi platforms must register as traditional SEC intermediaries. They argued that thoughtfully designed onchain markets can meet these goals through different methods.

DeFi Groups Challenge Citadel’s Arguments

The crypto coalition said Citadel’s proposal would be “impracticable given their functions.” They warned the rules could affect a wide range of onchain activities not typically considered exchange services.

The groups took issue with Citadel calling autonomous software an intermediary. They said software cannot be a middleman because it is not a person capable of exercising independent discretion or judgment.

“DeFi technology is a new innovation that was designed to address market risks and resiliency in a different way than traditional financial systems do,” the coalition wrote. They claimed DeFi protects investors in ways traditional finance cannot.

Citadel Securities defended its position in a statement. A spokesperson said the firm “strongly supports tokenization and other innovations that can reinforce America’s leadership in digital finance.”

The company added that innovation should not require “sacrificing the rigorous investor protections that have made U.S. equity markets the global Gold standard.” Citadel argued that DeFi platforms without regulation lack protections like venue transparency, market surveillance, and volatility controls.

SEC Seeks Industry Input on Tokenization Rules

The exchange of letters comes as the SEC collects feedback on how to regulate tokenized stocks. SEC chair Paul Atkins recently said the US financial system could embrace tokenization in a couple of years.

The new SEC leadership under President Donald TRUMP has been looking for ways to give the crypto industry more regulatory flexibility. White House crypto adviser Patrick Witt posted on social media that his office supports protecting software developers and DeFi.

DeFi Education Fund spokeswoman Jennifer Rosenthal suggested Citadel has business reasons for its stance. “It is convenient for Citadel to question the existence of a technology that threatens its business and market share,” Rosenthal said.

Blockchain Association CEO Summer Mersinger previously criticized Citadel’s letter as an “overbroad and unworkable approach.” Tokenization has grown rapidly this year, but NYDIG warned on Friday that assets moving onchain won’t immediately benefit crypto markets until regulations allow deeper integration with DeFi.