A counter-argument has been spearheaded by the DeFi Education Fund against the suggestion made by Citadel Securities that the SEC should subject DeFi platforms to securities legislation if they are involved in trading tokenized shares.
A coalition of crypto organizations has lodged a protest against the appeal by Citadel Securities urging the Securities and Exchange Commission to enforce stricter oversight on decentralized finance when it pertains to tokenized equities.
Andreessen Horowitz, the Uniswap Foundation, in addition to crypto advocacy organizations such as the DeFi Education Fund and The Digital Chamber, among others, stated that they desired “to rectify multiple factual inaccuracies and deceptive assertions” in a communication sent to the SEC on Friday.
The coalition was issuing a response to a communication from Citadel earlier this month, which had advocated that the SEC should not grant DeFi platforms “extensive exemptive leeway” for facilitating the exchange of tokenized U.S. shares, contending that these platforms could conceivably be categorized as an “exchange” or “broker-dealer” subject to regulation under securities statutes.
“Citadel’s letter rests on a flawed analysis of the securities laws that attempts to extend SEC registration requirements to essentially any entity with even the most tangential connection to a DeFi transaction,”
the group said.
The collective further mentioned that they supported Citadel’s objectives concerning investor safety and market probity, but they held a dissenting view “that the realization of these aspirations invariably requires official enrollment as conventional SEC middlemen and cannot, in specific situations, be fulfilled via intelligently configured on-chain marketplaces.”
Citadel Proposal Branded Unworkable by Industry Group
The collective asserted that overseeing decentralized venues under securities statutes “would prove unfeasible considering their operational roles” and could encompass an extensive array of on-chain operations that are not routinely classified as providing exchange functions.
The correspondence additionally criticized Citadel’s portrayal of autonomous software as a go-between, asserting that it cannot be considered a “‘middleman’ in a financial dealing because it is not an entity capable of employing self-governing discernment or deliberation.”
“DeFi technology is a new innovation that was designed to address market risks and resiliency in a different way than traditional financial systems do, and DeFi protects investors in ways that traditional finance cannot,”
the group argued.
In its communication, Citadel had contended that the SEC granting approval to tokenized equities on DeFi would establish “two distinct regulatory frameworks for the interchange of identical securities” and would jeopardize “the ‘technology-neutral’ methodology adopted by the Exchange Act.”
Citadel asserted that excusing DeFi platforms from securities legislation could potentially injure investors, given that the platforms would lack safeguards such as exchange openness, market supervision, and volatility management, among other provisions.
The correspondence initially generated substantial opposition, with Blockchain Association CEO Summer Mersinger stating that Citadel’s position was an “excessively sweeping and impractical strategy.”
These letters arrive as the SEC actively seeks commentary on the appropriate method for overseeing tokenized equities, and agency chair Paul Atkins has indicated that the U.S. financial framework could adopt tokenization within a “couple of years.”
Tokenization has dramatically surged in acceptance this year, yet NYDIG issued a caution on Friday that assets migrating onto the blockchain will not immediately deliver significant advantages to the crypto market until regulatory frameworks permit them to integrate more extensively with decentralized finance (DeFi).
