Powerful hedge fund Citadel Securities has submitted a letter to the U.S. Securities and Exchange Commission (SEC) voicing strong opposition to broad decentralized finance (DeFi) applications, particularly for tokenized U.S. equities. The firm argues that many DeFi platforms effectively operate as exchanges or broker-dealers, despite claims of decentralization, due to identifiable intermediaries like developers and governance groups who profit and influence transactions.
Citadel contends that exempting DeFi trading of tokenized equities from SEC rules would create transparency gaps regarding fees and conflicts of interest, alongside surveillance, compliance, operational, and custody risks. The hedge fund stressed it is not opposing innovation but stated, "it is important not to override key investor protections when trading tokenized securities." This stance has drawn backlash from the crypto industry, with commentators like Variant CLO Jake Chervinsky accusing Citadel of using the "playbook" of former SEC Chair Gary Gensler.
In a related development, Uniswap CEO Hayden Adams publicly accused Citadel CEO Kenneth Griffin of lobbying the SEC against DeFi projects like Uniswap. Adams stated, "We will fight the SEC’s attempts to stifle DeFi. This is about protecting the future of finance and innovation." The allegations have emerged against a backdrop of increased SEC scrutiny on DeFi, with historical comparisons drawn to past actions against projects like Rari Capital and Mango Markets.
The immediate market impact was a notable drop in the price of Uniswap's UNI token, which fell nearly 20% following the accusations. The event highlights escalating tensions between traditional finance and the DeFi sector, with potential implications for future regulatory frameworks. Notably, Citadel recently lost two general counsels to crypto companies, and CEO Ken Griffin disclosed a significant stake in DeFi Development Corp, a Solana treasury company, in October.
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