Several decentralized finance giants have joined together to challenge Citadel, arguing that equating autonomous code with traditional stockbrokers is a fundamental legal error.
An influential group of advocates for the decentralized finance ecosystem has formalized its position before the U.S. Securities and Exchange Commission through a letter that directly challenges the arguments recently presented by Citadel Securities.
The letter, signed by influential entities such as DeFi Education Fund, Andreessen Horowitz, The Digital Chamber and Uniswap FoundationThe document criticizes Citadel's view on DeFi market oversight as fundamentally flawed. It seeks to correct what the signatories consider inaccurate interpretations of current law and warns of the dangers of applying traditional regulations to autonomous technological infrastructures.
The root of this disagreement lies in the very definition of what constitutes an intermediary in the digital age. The coalition of crypto companies maintains that the letter previously sent by Citadel is based on a flawed analysis of current securities laws. According to industry advocates, the financial giant's proposal attempts to extend the regulatory agency's registration requirements to virtually any entity that has even a tangential connection to a transaction, ignoring the operational reality of smart contracts.
The central argument of the defense is that software and technological infrastructure cannot be classified under the legal definitions of intermediaries when the operators never lose direct control over their own assets.
Trade DeFi tokens now on Bit2MeThe debate on the nature of intermediaries and the DeFi ecosystem
The origin of this coordinated response This is found in a communication that Citadel Securities sent to the SEC in early December. In that document, the financial firm argued that certain decentralized systems are functionally similar to traditional stock exchanges. and, therefore, should be subject to comparable supervision.
Citadel specifically emphasized the case of protocols that manage tokenized US stocks, suggesting that by matching buyers and sellers, these platforms effectively act as exchanges or brokers, regardless of whether the execution is done via code.
Stephen John Berger, Citadel's Global Head of Governance and Regulatory Policy, stated at the time that concluding that no participant in these networks meets the definitions of a broker would suggest that the technology used carries more weight than the financial services provided. This position argues that allowing exceptions for the decentralized sector could call into question the regulatory treatment received by companies that have long been registered and compliant with the Commission.
Citadel argues that any exemption should go through a formal rulemaking process, warning that unequal oversight between tokenized and traditional markets could seriously undermine investor protections.
However, the crypto industry has historically maintained that its operation differs structurally from traditional finance. absence of direct intermediaries Having the funds held in custody makes compliance with the same rules extremely difficult, or even impossible.
Hayden Adams, founder of Uniswap, along with other industry commentators, denounced Citadel's vision as misrepresenting open-source developers as financial intermediaries, reflecting a broader resistance from traditional finance to the new decentralized infrastructure.
Log into your account and access DeFiIn defense of open source autonomy
The response sent this Friday by the pro-crypto group seeks to dismantle the idea that computer code can be regulated like a legal entity or a stockbroker. The signatories explained to the SEC that the factual characterizations presented by Citadel are misleading because they omit the determining factor of custody. In the traditional model, the intermediary holds the client's assets for the duration of the transaction, whereas in decentralized finance, The user interacts directly with the protocol without relinquishing ownership of their tokens to a third party..
Andreessen Horowitz and its allies argue that Citadel's legal interpretation would force entities that simply write or publish code to register with the SEC, something that has no basis in current securities legislation.
Furthermore, the group points out that this expansive view of regulation could stifle innovation by imposing bureaucratic burdens designed for centralized institutions on individual developers and software teams. The letter emphasizes that blockchain technology allows transactions to be settled without the need for trust in a central counterparty, thus eliminating the risk that intermediary regulations originally sought to mitigate.
The document submitted to the regulatory agency insists that the mere existence of a user interface or participation in the governance of a protocol does not make an entity a stockbroker. Industry advocates seek to establish a clear distinction between facilitating access to a technological tool and engaging in financial intermediation activities.
By rejecting Citadel's premise, the group is trying to protect open-source software development from legal liability that they consider disproportionate and unenforceable.
Buy DeFi tokens with confidence at Bit2MeDeFi and the crypto market seek complete regulatory clarity
This exchange of legal arguments highlights the urgent need for clear crypto regulation adapted to the technological realities of the 21st century.
While established players like Citadel Securities advocate for regulatory parity to prevent arbitrage and protect the existing market, innovators in the digital space argue that the rules must evolve to recognize the new efficiencies that technology brings. The SEC's resolution of this debate could define the future of how financial markets are structured and operate in the coming years.
The industry hopes the Commission will consider these technical distinctions before issuing final guidelines or taking enforcement action based on outdated interpretations of the law. Clarity on what constitutes an intermediary in a decentralized network is vital not only for regulatory compliance but also to ensuring that the United States remains a fertile ground for financial technology development.
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