On December 2, Citadel Securities filed a 13-page letter with the SEC arguing that decentralized protocols facilitating tokenized U.S. stock trading already meet the regulatory definitions of exchanges and broker-dealers, and that regulators should treat them accordingly.
Two days later, the SEC’s Investor Advisory Committee convened a panel on tokenized stocks, which made it clear that the question is no longer whether stocks can move on-chain, but whether they can do so without dismantling the permissionless architecture that DeFi has built.
The divide between these two positions now defines the most consequential regulatory battle in crypto since the Howey test debates.
Citadel’s letter came at a time when tokenized equity was no longer a thought experiment. The company welcomes tokenization in principle, but emphasizes that realizing its benefits requires applying “the key fundamentals and investor protections that underpin the fairness, efficiency and resilience of U.S. equity markets.”
In other words, the document suggests that companies looking to trade tokenized Apple stock must comply with Nasdaq rules, including transparent fees, consolidated tape reporting, market surveillance, fair access and registration as an exchange or broker-dealer.
The filing warns that granting broad exemptions to DeFi platforms creates a shadow US stock market in which liquidity fragments, retail investors lose Exchange Act protections, and incumbents face regulatory arbitrage from unregistered competitors.
Within hours, Uniswap founder Hayden Adams fired back at X, calling Citadel’s stance an attempt to “treat software developers of decentralized protocols as centralized intermediaries.”
He appealed to ConstitutionDAOthe 2021 crowdfunding effort that pooled $47 million in Ethereum to bid for a first-edition Constitution at Sotheby’s, but lost to Griffin’s $43.2 million bid.
Additionally, Adams expanded on Citadel’s argument about fair access, calling it “actual nerve” by the dominant player in retail order flow. The exchange captured the core narrative of crypto, namely permissionless code versus gatekeeper control, and set the terms for the December 4 panel.
The legal Boxcitadel wants to close
Citadel goes through the Exchange Act definitions to make its case. An exchange is “any organization, association or group of persons” that “provides a marketplace or facilities for the bringing together of buyers and sellers of securities.”
Rule 3b-16 clarifies that a system functions as an exchange if it aggregates orders using established, non-discretionary methods and if buyers and sellers agree to trade.
Citadel argues that many DeFi protocols hit all three points: there is a “group of people” behind the protocol (founding designers, governing bodies, foundations), the protocol brings buyers and sellers together through non-discretionary code (automated market makers, on-chain order books), and users agree to trade when they submit trades.
The same logic applies to broker-dealer status.
Citadel catalogs DeFi trading apps, wallet providers, AMMs, liquidity providers, searchers, validators, protocol developers, and smart contract developers.
Transaction-based fees, governance token rewards, or order routing payments are listed for each. The implication is that protocols that collect revenue related to securities trading, even through code, will need to register.
That framework is consistent with the SEC’s 2024 enforcement action against Rari Capital, which accused a DeFi lending protocol and its founders of acting as unregistered brokers. Citadel wants Rari to serve as a template.
The demand for fair access became the focal point. Exchanges and ATSs must apply objective criteria to all users, eliminating discrimination in who can trade and the fees they pay.
Citadel’s letter notes that there are “no equivalent requirements for unregistered DeFi trading systems, allowing them to arbitrarily restrict access or favor certain members over others.”
Adams chose that paragraph for his screenshot, arguing that Citadel can’t credibly claim that DeFi doesn’t have fair access when the company itself dominates the retail order flow of brokers like Robinhood.
Armani Ferrante, founder of Backpack, added:
“‘DeFi’ is not well defined and so all of these conversations are an apples-to-oranges comparison. There are CEXs. Unregulated CEXs. DEXs. And unregulated CEXs masquerading as DEXs.”
What the December 4 panel revealed
The SEC Investor Advisory Committee meeting framed tokenized stocks within a mainstream market structure rather than treating them as a crypto novelty.
The panel, moderated by Andrew Park and John Gulliver, brought together representatives from Coinbase, BlackRock, Robinhood, Nasdaq, Citadel Securities and Galaxy Digital.
The agenda tested how issuance, trading, clearing, settlement and investor protection could work under existing rules, with an explicit focus on native issuance versus wrapper models, the applicability of regulations to NMS, cross-chain interoperability, and settlement and short-selling mechanisms.
Commissioner Crenshaw spoke the skeptical case. She noted that many tokenized equity products marketed as “wrapped exposure” are not one-to-one replicas of the underlying equities, with ownership rights and rights that may be unclear or separate from the issuers.
Additionally, she wondered whether relaxing requirements simply because a product is on a blockchain leads to regulatory arbitrage.
That framework is consistent with the agenda’s emphasis on distinguishing real equity-like rights from similar tokens.
Chairman Paul Atkins responded by pitching tokenization as a modernization project for US capital markets, arguing that the Commission must enable markets to move within the chain while maintaining US leadership in the global financial sector.
Outside the meeting, resistance from the incumbents increased. The World Federation of Exchanges warned the SEC of broad relief that would let crypto companies sell tokenized shares without the traditional regulatory perimeter.
SIFMA reiterated a technology-neutral line and supported innovation, but argued that tokenized securities should remain subject to fundamental rules of investor protection and market integrity and that any exceptions should be limited.
Nasdaq’s previous proposal to treat eligible tokenized stocks as fungible with traditional stocks on the same order book, with the same CUSIP and the same substantive rights, is consistent with the direction Atkins appears to be advocating.
Competing theories of control
Citadel theory states that a security is a security regardless of the ledger.
When you bring together buyers and sellers of Apple stock, even in token form, using automated code and collecting fees, you are performing exchange or broker-dealer functions and must fulfill these obligations.
This view treats code as infrastructure, not ideology. It assumes that investor protection results from the liability of intermediaries and not from technical design.
Adams’ theory views open source code as different from intermediaries. A smart contract has no customers, assumes no custody, exercises no discretion, and does not fit the mid-20th century Exchange Act model.
Treating protocol developers as brokers confuses writing software with running a business and gives incumbents a veto over what technologies can exist.
This view assumes that protection comes from transparency and permissionlessness: anyone can control the code, fork it, or build a competing infrastructure.
Commissioner Hester Peirce, who heads the SEC’s Crypto Task Force, has taken a position closer to Adams.
In one February statementshe stated that mainstream DeFi front-end builders and open source developers should not automatically be held to exchange and broker standards just for publishing code or running a non-custodial UI.
Yet in the letter, Citadel explicitly mentions “DeFi protocol developers” and “smart contract developers” as potential intermediaries that design, deploy, and maintain infrastructure while collecting fees for executing transactions, exercising governance rights, and prioritizing network traffic.
If deploying a smart contract that allows users to trade tokenized stocks turns one into a broker-dealer subject to net capital rules, custodial obligations, and know-your-customer obligations, then the development of open source protocols becomes legally untenable.
What happens next
The signal for 2026 is that the SEC will test whether tokenized stocks can exist within the same architecture of investor rights and market integrity that governs current stocks.
Atkins has launched an innovation exemption, a supervised sandbox that would let some tokenized equity platforms operate without full registration while the agency studies the risks.
The December 4 panel viewed that waiver as a compliance stress test and not a blanket waiver.
The big outstanding battle is whether innovation pathways will be closely tied to NMS regulation and existing intermediary obligations, or whether the SEC will adopt broader experimental exceptions that TradFi groups fear could fragment liquidity and weaken protections.
If the SEC sides with Citadel, the DeFi protocols that handle tokenized equity will face compliance burdens designed for Fidelity and Morgan Stanley, driving activity offshore or into gray market wrappers.
If they side with Adams, traditional participants will argue that the agency created regulatory arbitrage, and lawsuits against SIFMA and the World Federation of Exchanges will follow.
The outcome will determine whether tokenized US stocks can trade on public blockchains under the permissionless ethos that DeFi built, or whether opening the stock market to on-chain settlement means closing the open architecture of DeFi in America.
Griffin placed his bet. The SEC now chooses who gets the architecture.
