Powerful hedge fund Citadel Securities has expressed its strong opposition to large-scale decentralized finance (DeFi), particularly for tokenized U.S. stocks, in a letter to the SEC that provides comments on the proposed exemptions.
His stance sparked strong reactions from some voices in the crypto industry.
Not decentralized?
Citadel argues that many DeFi platforms effectively function as exchanges or brokers, despite claims of decentralization.
There are identifiable intermediaries (developers, governance groups, etc.) who profit from transactions and influence order execution.
Users interact with smart contracts that function as binding agreements, much like orders do on a traditional exchange.
If DeFi trading of tokenized stocks were exempt from SEC rules, it would result in transparency gaps such as fees and conflicts of interest. There are also oversight and compliance gaps, operational risks as well as custody issues.
Tokenized securities should be treated like traditional stocks, says Citadel.
At the same time, the hedge fund stressed that it is not opposed to innovation.
“However, it is important not to override key investor protections when trading tokenized securities,” he said.
Gensler’s playbook?
Some crypto industry commentators have accused Citadel of using former SEC Chairman Gary Gensler’s playbook.
“Who would have ever thought that Citadel would be against innovation that removes predatory, rent-seeking middlemen from the financial system? Oh, that’s right, literally every single person involved in crypto,” joked Variant CLO Jake Chervinsky.
Notably, Citadel recently lost two of its general advisors to crypto companies.
In October, Citadel CEO Ken Griffin recently disclosed a significant stake in DeFi Development Corp, which is a Solana treasury company.
