The Regulatory Battle Over Tokenized Equities
Citadel Securities has filed a detailed letter with the SEC arguing that decentralized protocols handling tokenized stock trading should be classified as exchanges and broker-dealers. The firm’s position, submitted on December 2, represents a significant escalation in the debate over how traditional securities regulations should apply to blockchain-based trading systems.
What’s interesting here is the timing. Tokenized equities have moved beyond theoretical discussions into practical implementation, and Citadel acknowledges this shift. They’re not opposing tokenization itself—in fact, they welcome it in principle. But they insist that any system trading tokenized Apple shares or similar securities must follow Nasdaq rules. That means transparent fees, consolidated reporting, market surveillance, and proper registration.
Uniswap’s Immediate Response
Uniswap founder Hayden Adams didn’t wait long to respond. Within hours, he called Citadel’s position an attempt to treat software developers like centralized intermediaries. He pointed to what he sees as hypocrisy in Citadel’s fair-access arguments, noting that Citadel dominates retail order flow through brokers like Robinhood.
Adams brought up ConstitutionDAO, that 2021 effort where people pooled Ethereum to bid on a Constitution copy. They lost to Ken Griffin’s $43.2 million bid. The reference wasn’t random—it highlighted the philosophical divide between permissionless systems and traditional gatekeepers.
The Legal Framework at Stake
Citadel’s argument rests on existing securities laws. They walk through the Exchange Act definitions, noting that an exchange includes any organization that provides facilities for bringing together buyers and sellers. Rule 3b-16 adds that systems operating as exchanges use established, non-discretionary methods where buyers and sellers agree to trade.
The firm argues many DeFi protocols meet all these criteria. There’s usually some group behind the protocol—founders, governance organizations, foundations. The code brings together buyers and sellers through automated market makers or on-chain order books. Users agree to trade when they submit transactions.
This logic extends to broker-dealer status too. Citadel lists various DeFi participants—trading apps, wallet providers, liquidity providers, even smart contract developers. For each, they note transaction-based fees or governance-token rewards. The implication is clear: if you collect revenue tied to securities trading, even through code, you should register.
The SEC’s Deliberations
Two days after Citadel’s letter, the SEC’s Investor Advisory Committee held a panel on tokenized equities. The discussion wasn’t about whether stocks could move on-chain—that seems accepted now. The real question is whether they can do so without dismantling the permissionless architecture that defines DeFi.
Commissioner Crenshaw expressed skepticism about many tokenized equity products. She noted that wrapped exposure products often aren’t true one-to-one replicas of underlying shares. Ownership rights can be unclear or disconnected from issuers. She questioned whether relaxing requirements just because something sits on a blockchain invites regulatory arbitrage.
Chairman Paul Atkins took a different view, pitching tokenization as a modernization project for US capital markets. He argued the Commission should enable markets to move on-chain while maintaining US leadership in global finance.
Competing Theories of Control
This debate reveals fundamentally different views about how regulation should work in decentralized systems. Citadel’s theory treats securities as securities regardless of the ledger. If you facilitate Apple share trading, even tokenized, using automated code and collecting fees, you’re performing exchange functions and should meet those obligations.
Adams’s theory treats open-source code as fundamentally different from intermediaries. A smart contract doesn’t have customers, doesn’t take custody, doesn’t exercise discretion. Treating protocol developers as brokers, he argues, conflates writing software with operating a business.
Commissioner Hester Peirce has staked out a position closer to Adams. In a February statement, she suggested ordinary DeFi front-end builders and open-source developers shouldn’t automatically be held to exchange and broker standards just for publishing code.
What Comes Next
The signal for 2026 seems clear: the SEC will test whether tokenized equities can exist within existing investor-rights and market-integrity frameworks. Atkins has floated an innovation exemption—a supervised sandbox letting some tokenized equity platforms operate without full registration while risks are studied.
The unresolved fight is whether innovation pathways will be tied to existing regulations or whether broader experimental carve-outs will emerge. Traditional finance groups fear the latter could fragment liquidity and weaken protections.
If the SEC sides with Citadel, DeFi protocols handling tokenized equities face compliance burdens designed for traditional financial institutions. That could drive activity offshore or into gray-market wrappers. If they side with Adams, traditional participants will likely argue the agency created regulatory arbitrage, potentially leading to litigation.
The outcome decides something fundamental: 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 means closing DeFi’s open architecture in America. Ken Griffin has placed his bet. Now the SEC chooses who gets the architecture.
