Market maker Citadel Securities has formally warned the U.S. Securities and Exchange Commission (SEC) against accelerating regulations for tokenized securities, citing potential market disruption and investor confusion. In a letter to the SEC's Crypto Task Force, Citadel argued that premature implementation could grant unfair advantages to cryptocurrency platforms while draining liquidity from traditional equity markets.
The firm emphasized that tokenized securities—which represent real-world assets like stocks on blockchain networks—must prove their value through genuine innovation and efficiency rather than regulatory arbitrage. While proponents highlight benefits like 24/7 trading, fractional ownership, and faster settlements, Citadel contends these could "siphon liquidity away" from traditional markets, creating inaccessible pools for institutions like pensions and banks.
This caution comes amid growing momentum for tokenization, with major players like BlackRock, Franklin Templeton, Coinbase, and Robinhood launching products. The tokenized real-world asset market currently stands at $25 billion. SEC Chair Paul Atkins has advocated for modernization, comparing tokenization's potential to audio format evolution and suggesting an "innovation exemption."
Citadel urged the SEC to pursue formal rulemaking instead of piecemeal guidance, warning that fragmented approaches might harm IPO markets by offering private firms alternative capital-raising avenues. The letter also echoed broader institutional concerns about crypto adoption challenges, including custody risks and collateral volatility—issues recently highlighted by JPMorgan's exploration of Bitcoin-backed loans.