A high-stakes regulatory battle is unfolding at the Securities and Exchange Commission (SEC), pitting traditional finance giant Citadel Securities against the decentralized finance (DeFi) world, led by Uniswap. At the heart of the dispute is the rapidly evolving landscape of tokenized US equities and the fundamental question of whether the developers of permissionless, open-source protocols should be classified as unregistered stockbrokers or exchanges.
The conflict intensified on December 2, when Citadel Securities submitted a detailed 13-page letter to the SEC. Their argument was clear: decentralized protocols that facilitate the trading of tokenized US equities already meet the statutory definitions of exchanges and broker-dealers under existing securities laws. Consequently, Citadel urged regulators to apply these traditional frameworks to DeFi, emphasizing the need for investor protection and market integrity.
Just two days later, the SEC's Investor Advisory Committee convened a panel to discuss tokenized equities. This meeting underscored that the debate is no longer about the technical feasibility of moving stocks onto a blockchain, but rather about whether this can occur without dismantling the very permissionless architecture that defines DeFi. The chasm between these two perspectives now represents one of the most significant regulatory challenges in the crypto space since the landmark Howey test discussions.
Citadel's Call for Traditional Regulation
Citadel's letter arrived at a pivotal moment, as tokenized equities transitioned from a theoretical concept to a tangible market reality. While the firm acknowledges the potential benefits of tokenization in principle, it firmly insists that realizing these advantages necessitates applying the "key bedrock principles and investor protections that underpin the fairness, efficiency, and resiliency of US equity markets."
In practical terms, Citadel suggests that companies facilitating the trade of tokenized shares, such as those representing Apple stock, must adhere to rules similar to those governing Nasdaq. These include:
- Transparent fee structures.
- Consolidated tape reporting.
- Robust market surveillance.
- Ensuring fair access to markets.
- Mandatory registration as an exchange or broker-dealer.
The filing warns that granting broad exemptive relief to DeFi platforms could lead to the creation of a "shadow US equity market." Such a market, Citadel argues, would suffer from fragmented liquidity, strip retail investors of crucial Exchange Act protections, and allow unregistered competitors to engage in regulatory arbitrage against established incumbents.
Uniswap's Swift Retort: Code vs. Intermediary
Within hours of Citadel's filing, Hayden Adams, founder of Uniswap, took to X (formerly Twitter) to launch a spirited counter-argument. Adams characterized Citadel's position as an attempt to "treat software developers of decentralized protocols like centralized intermediaries."
He referenced ConstitutionDAO, the 2021 crowdfunding initiative that raised $47 million in Ethereum to bid on a rare first-edition copy of the US Constitution at Sotheby's, only to be outbid by Citadel founder Ken Griffin. This anecdote served to highlight the perceived hypocrisy of a traditional finance giant now criticizing decentralized, open access.
Adams particularly zeroed in on Citadel's argument for "fair access." He called it "actual nerve" coming from a firm that is the dominant player in retail order flow, especially from popular brokerage apps like Robinhood. This exchange quickly framed the core narrative for the Dec. 4 panel: permissionless code versus gatekeeper control.
Deconstructing Citadel's Statutory Argument
Citadel systematically walks through the definitions within the Exchange Act to build its case. An "exchange," as defined, is "any organization, association, or group of persons" that "provides a market place or facilities for bringing together purchasers and sellers of securities." Rule 3b-16 further clarifies that a system operates as an exchange if it facilitates orders using established, non-discretionary methods and if buyers and sellers agree to trade.
Citadel contends that many DeFi protocols meet all three criteria:
- There is indeed a "group of persons" behind the protocol, including founding designers, governance organizations, and foundations.
- The protocol brings together buyers and sellers via non-discretionary code, such as automated market makers (AMMs) or on-chain order books.
- Users explicitly agree to trade when they submit transactions to these protocols.
This same logical framework is extended to argue for broker-dealer status. Citadel's letter meticulously catalogs various DeFi entities, including trading apps, wallet providers, AMMs, liquidity providers, searchers, validators, and even protocol and smart contract developers. For each, it points to transaction-based fees, governance-token rewards, or order-routing payments as evidence of revenue collected from securities trading, implying that even code-driven revenue collection should trigger registration requirements.
This framing aligns with the SEC's 2024 enforcement action against Rari Capital, where a DeFi lending protocol and its founders were charged with operating as unregistered brokers. Citadel seemingly aims for Rari to become the template for future enforcement.
The "fair access" requirement became a significant point of contention. Traditional exchanges and alternative trading systems (ATSs) must apply objective criteria to all users, prohibiting discrimination in who can trade and the fees they pay. Citadel's letter noted the absence of "equivalent requirements for unregistered DeFi trading systems," suggesting this enables them to limit access arbitrarily. Adams's screenshot of this specific paragraph highlighted the perceived irony, given Citadel's own market dominance. Armani Ferrante, founder of Backpack, added a crucial nuance, pointing out that "'DeFi' is not well defined and so all of these conversations are an apples to oranges comparisons. There's CEXs. Unregulated CEXs. DEXs. And unregulated CEXs pretending to be DEXs."
Insights from the SEC's Dec. 4 Panel
The SEC Investor Advisory Committee meeting on December 4 approached tokenized equities not as a niche crypto phenomenon but within the broader context of mainstream market structure. Moderated by Andrew Park and John Gulliver, the panel featured representatives from prominent institutions like Coinbase, BlackRock, Robinhood, Nasdaq, Citadel Securities, and Galaxy Digital.
The agenda focused on how issuance, trading, clearing, settlement, and investor protections could operate under existing rules. Specific areas of discussion included distinguishing native issuance from wrapper models, the applicability of Regulation NMS, interoperability across various blockchains, and the mechanics of settlement and short-selling.
Commissioner Caroline Crenshaw articulated a skeptical viewpoint. She highlighted concerns that many tokenized equity products, marketed as wrapped exposure, are not perfect one-to-one replicas of underlying shares. Their ownership rights and entitlements, she noted, can be unclear or disconnected from the original issuers. Crenshaw questioned whether relaxing requirements simply because a product uses blockchain technology would inevitably invite regulatory arbitrage.
Conversely, Chairman Paul Atkins advocated for tokenization as a modernization initiative for US capital markets. He argued that the Commission should enable markets to transition on-chain while preserving America's leadership in global finance. Outside the meeting, incumbent resistance solidified, with the World Federation of Exchanges (WFE) warning the SEC against broad relief for crypto firms selling tokenized stocks outside the traditional regulatory perimeter. SIFMA echoed this, supporting innovation but insisting that tokenized securities must remain subject to core investor protection and market integrity rules, with any exemptions being narrowly defined.
Competing Theories of Control: Code vs. Intermediary Accountability
Citadel's overarching theory rests on the principle that a security is a security, regardless of the underlying ledger. If a system brings together buyers and sellers of Apple shares, even if tokenized, uses automated code, and collects fees, it is performing exchange or broker-dealer functions and must meet the corresponding obligations. This perspective views code as mere infrastructure, not an ideological construct, assuming that investor protection primarily flows from intermediary accountability rather than technical design.
Adams's theory, however, posits that open-source code is inherently distinct from traditional intermediaries. A smart contract, by design, does not have customers, does not take custody of assets, does not exercise discretion, and therefore, does not fit the mid-20th-century model envisioned by the Exchange Act. Treating protocol developers as brokers, Adams argues, conflates writing software with operating a business and effectively grants incumbents veto power over which technologies can exist. This view assumes that protection stems from transparency and permissionlessness: anyone can audit the code, fork it, or build competing infrastructure.
Commissioner Hester Peirce, who leads the SEC's Crypto Task Force, has previously expressed a position closer to Adams's. In a February statement, she cautioned against automatically holding ordinary DeFi front-end builders and open-source developers to exchange and broker standards simply for publishing code or running a non-custodial user interface.
Yet, Citadel's letter directly challenges this, explicitly listing "DeFi protocol developers" and "smart contract developers" as potential intermediaries. They argue these individuals design, deploy, and maintain infrastructure while collecting fees for executing trades, exercising governance rights, and prioritizing network traffic. The implication is severe: if deploying a smart contract that enables users to trade tokenized stocks automatically subjects someone to net-capital rules, custody requirements, and know-your-customer (KYC) obligations, then open-source protocol development in this sector could become legally untenable.
What Happens Next: A Defining Choice for the SEC
The signal for 2026 is clear: the SEC intends to rigorously test whether tokenized equities can coexist within the same investor-rights and market-integrity architecture that governs traditional equities today. Chairman Atkins has previously suggested an "innovation exemption" or a supervised sandbox, which would allow certain tokenized equity platforms to operate without full registration while the agency studies the associated risks. The Dec. 4 panel framed such an exemption as a compliance stress test, not a blanket waiver.
The central unresolved question is whether these innovation pathways will be tightly linked to Regulation NMS and existing intermediary obligations, or if the SEC will entertain broader experimental carve-outs. Traditional finance groups fear the latter could fragment liquidity and weaken investor protections significantly. If the SEC sides with Citadel, DeFi protocols handling tokenized equities will face compliance burdens designed for giants like Fidelity and Morgan Stanley, potentially driving activity offshore or into less regulated "gray-market" wrappers. Conversely, if the SEC aligns with Adams, traditional participants will likely argue that the agency has created regulatory arbitrage, potentially leading to litigation from groups like SIFMA and the World Federation of Exchanges.
The outcome of this pivotal debate will determine whether tokenized US equities can trade on public blockchains under the permissionless ethos that built DeFi, or whether opening the stock market to on-chain settlement ultimately means closing DeFi's open architecture in America. The decision rests squarely with the SEC, shaping the future of finance for years to come.
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