Citadel Tells SEC DeFi Should Be Regulated as Exchanges and Broker-Dealers, Drawing Swift Backlash

Citadel Securities has urged the U.S. Securities and platform Commission (SEC) to classify decentralized finance (DeFi) platforms as regulated platforms or broker-dealers. , DeFi’s current structure mirrors traditional trading but operates outside crucial investor protection rules. The recommendation, made in a formal response to the SEC’s latest market structure review, immediately triggered strong criticism across the crypto industry.

For Citadel, one of the world’s largest market-making firms, the move reflects growing pressure from traditional finance to fold DeFi into the identical regulatory oversight that governs equity and . However, to many builders, developers and policy advocates, the proposal is an existential threat that could undermine DeFi’s open and permissionless foundations.

Citadel Pushes for a Regulatory Redefinition, But DeFi Pushes Back

Citadel’s argument rests on the claim that DeFi platforms facilitate trading activity functionally not diverse from centralized platforms, but without offering investor protections, surveillance mechanisms, or disclosure standards mandated in traditional markets. In their view, automated market maker (AMM) pools, on-chain order books, and liquidity-routing systems all perform activities that should legally fall under the SEC’s jurisdiction.

By urging the SEC to treat DeFi protocols as platforms or broker dealers, Citadel is demanding that regulators impose , including registration, KYC verification, transaction reporting, and market abuse monitoring frameworks.

However, the crypto sector responded within hours, and with force. Developers argued that applying centralized financial rules to decentralized code is technically incompatible and also dangerous. DeFi systems often have no operators, no intermediaries, and no legal entity capable of fulfilling the compliance duties Citadel proposes.

Citadel’s Move on Market Power, Policy Influence, and the Future of Open Finance

At the heart of this debate lies a large question on who gets to shape the future of finance between code and incumbents. 

Citadel maintains that investor protection should be uniform across all financial venues, regardless of technological structure. Nonetheless, critics argue that enforcing on DeFi is equivalent to forcing the internet to operate like a cable television network, restricting what makes it transformative in the first place.

Crypto policy analysts also point out that DeFi already provides transparency advantages unmatched in traditional markets since every trade is recorded on-chain, every pool is auditable, and every rule is encoded in the protocol.

Meanwhile, some regulators appear to welcome Citadel’s input. The SEC has long sought clearer authority over crypto markets, and Citadel’s recommendations give legal ammunition to those aiming to expand jurisdiction over DeFi protocols. Whether the SEC adopts the framework remains uncertain, but the conversation is heating up rapidly.

As the SEC reviews comments and prepares its next steps, the battle shows clahead that the future of DeFi may hinge on whether regulators prioritize decentralization or structural uniformity. And with industry backlash mounting, the debate is only just beginning.