Citadel Securities in December 2025 urged the U.S. Securities and Exchange Commission (SEC) to apply stricter oversight to tokenized assets in decentralized finance, arguing that uniform market rules are necessary to prevent what it termed a “shadow equities market.”
Citadel’s submission framed tokenized securities and certain DeFi protocols as effectively recreating centralized intermediaries, despite being implemented in code. The firm argued that identifiable actors — core developers or governance groups — can play intermediary roles that warrant broker-dealer or exchange-style oversight, and that equal rules are necessary to protect investors and market integrity. A succinct phrase in the letter described the risk as a “shadow equities market,” attributed to Citadel’s government and regulatory team.
A coalition of industry groups — including the DeFi Education Fund, Andreessen Horowitz (a16z), the Uniswap Foundation and The Digital Chamber — issued a sharp critique, labelling Citadel’s proposals “unfounded” and “misleading.” They argued that applying centralized-era securities law to autonomous smart contracts mischaracterises how DeFi operates, emphasizing self-custody and code-enforced execution as structural differences that complicate a direct translation of broker-dealer rules.
The rebuttal warned that broad enforcement on open-source developers could impose compliance burdens that stifle innovation and shift tokenized markets toward institutional architectures. The coalition framed its position as seeking investor protection through tailored, innovation-friendly frameworks rather than retrofitting legacy rules.
Citadel case for tighter rules
The dispute has accelerated regulatory and market-level activity, with market infrastructure firms and exchanges engaging the SEC and submitting proposals intended to create regulated paths for tokenization. According to the filings and correspondence cited in the industry exchanges, the Depository Trust & Clearing Corporation (DTCC) won SEC approval for a pilot to tokenize high-liquidity assets, with a 2026 launch planned. Other market participants named in the correspondence — Nasdaq, Robinhood, Kraken and Ondo Finance — are likewise advancing rule-change requests, pilot schemes or product proposals aimed at bridging TradFi infrastructure and blockchain-native offerings.
For traders and crypto treasuries, the immediate implication is heightened legal and operational uncertainty. If regulators move toward Citadel’s preferred approach, tokenization projects may face higher compliance costs and reduced decentralization; if regulators adopt industry-driven, bespoke rules, tokenized products could scale faster but with a more fragmented compliance landscape and potential arbitrage between regimes.
The clash frames a pivotal regulatory choice: whether tokenized markets will be folded into traditional oversight models or governed by tailored rules acknowledging code-centric mechanics.
