Wall Street vs Web3: DeFi Pushes Back as Citadel Calls for Tighter SEC Control

A fresh regulatory clash is unfolding in Washington, and this time it pits one of Wall Street’s most powerful trading firms against a broad coalition from the decentralized finance world. After Citadel Securities submitted a detailed thirteen-page letter urging the U.S. Securities and Exchange Commission to impose stricter oversight on DeFi platforms dealing in tokenized securities, the crypto industry fired back with a sharply worded response, dismissing Citadel’s claims as fundamentally flawed.

In its counter-letter to the SEC, a group comprising the DeFi Education Fund, venture capital giant Andreessen Horowitz, the Digital Chamber, Orca Creative, legal scholar J.W. Verret, and the Uniswap Foundation challenged the idea that decentralized protocols must be treated like traditional financial intermediaries. The group argued that while investor protection and orderly markets are shared goals, forcing onchain systems into legacy regulatory frameworks is not the only—or even the best—way to achieve them. According to the coalition, thoughtfully designed blockchain-based markets can uphold these principles without mandatory registration as conventional exchanges or broker-dealers.

Citadel Securities, in its original submission, warned that certain DeFi protocols functionally resemble exchanges or brokerages and should therefore fall under existing SEC rules. But the timing of the debate adds another layer of complexity. The SEC’s leadership under President Donald Trump has signaled a more flexible stance toward crypto innovation, exploring ways to loosen regulatory pressure without undermining market integrity. That shift was echoed publicly by White House crypto adviser Patrick Witt, who recently stated that his office supports the need to protect DeFi and open-source software developers.

Citadel, for its part, maintains that it is not opposing innovation. A spokesperson for the firm emphasized that the company supports tokenization and emerging financial technologies, framing its position as an effort to preserve the investor safeguards that have historically defined U.S. capital markets. In Citadel’s view, embracing digital finance should not come at the cost of the regulatory standards that made American equity markets a global benchmark.

The DeFi coalition sees the issue very differently. In its response, the group accused Citadel of presenting inaccurate descriptions of how decentralized systems actually work, calling out what it described as misleading statements and factual errors. Jennifer Rosenthal, a spokeswoman for the DeFi Education Fund, went a step further, suggesting that Citadel’s stance is less about protecting investors and more about protecting its own dominance.

According to Rosenthal, it is hardly surprising for an incumbent market heavyweight to question technologies that could erode its influence and market share. From the DeFi perspective, the debate is not just about regulation, but about whether the future of finance will be shaped by open, programmable systems or remain firmly anchored to centralized gatekeepers.

As regulators weigh these competing narratives, the standoff highlights a deeper tension at the heart of financial innovation. The question facing the SEC is no longer whether blockchain-based markets are coming, but whether existing rules can adapt to them without smothering the very innovation they aim to oversee.