The Blockchain Association, a major crypto advocacy group representing over 100 members including Coinbase, Circle, and Mysten Labs, has formally challenged Citadel Securities, one of the world's largest market makers, over its stance on how the Securities and Exchange Commission (SEC) should regulate decentralized finance (DeFi) protocols. This clash comes as the tokenization of traditional financial markets gains significant momentum.
The dispute centers on a December letter from Citadel Securities to the SEC, in which the firm argued that many DeFi protocols meet the legal definition of an exchange because they use non-discretionary methods like algorithms to match buyers and sellers. Citadel called for the SEC to adopt a more stringent notice-and-comment rulemaking process for DeFi, rather than considering a regulatory exemption.
In a direct response sent on Monday, the Blockchain Association forcefully rejected Citadel's position. The group argued that DeFi protocol developers are not brokers, dealers, or exchange operators and "cannot be shoehorned into the statutory categories designed for human-operated intermediaries." Instead, the Association urged the SEC to proceed with an innovation exemption framework, which SEC Chair Paul Atkins has directed staff to develop. This framework would function as a regulatory sandbox for on-chain assets.
The Blockchain Association framed Citadel's push for comprehensive rulemaking as a "strategy of delay," warning that such a process could take years. The group stated that during this delay, "the benefits of tokenization would remain unavailable to American investors and innovation in the space would relocate to more innovation-friendly jurisdictions offshore."
The advocacy group emphasized that securities laws regulate intermediaries, not "neutral infrastructure," such as validators, autonomous smart contracts, and non-custodial software. It also pointed out that the SEC has previously used its authority to grant exemptions for financial technology innovations and should do the same for tokenized equity trading. This regulatory debate is unfolding as the SEC has already greenlit entities like Nasdaq to advance with tokenized securities, while maintaining that these assets remain subject to securities laws.
